Sounds great. But it is nothing but deceptive demagoguery. It didn’t even convince the left-leaning Brookings Institute, which labeled it a “cheap political gimmick.”
Indeed, for somebody who is supposed to be such an expert on finance and banking, the gentlest description of Warren’s stance is that it is deliberately disingenuous.
The interest rate Warren is talking about is from the so-called Federal Reserve Discount Window, which is used to make short-term loans to banks to “meet temporary shortages of liquidity.” Those loans are also secured with plenty of collateral – if the banks don’t pay it back, the lenders can seize their assets.
Students put up no collateral for a long-term loan – a decade or more – other than a promise and the supposition that they will get a higher-paying job than if they didn’t go to college. And they are an increasingly poor risk. The Department of Education anticipates that 23 percent of the subsidized Stafford loans it makes this year will default.
Could Sen. Warren be advocating toxic loans? Does she want to wreck the economy?
It is not just the misleading elements of the bill either. The new interest rate would apply only to new borrowers, not the thousands already carrying loans. It would expire in one year, setting up yet another manufactured “crisis,” when she and her fellow Democrats will complain that Republicans want to “quadruple student loan interest rates!” if they won’t vote to extend it again.
Worse yet, it is another incentive for students to go into even more debt. A low interest rate is much more attractive than a high interest rate, but the real problem is the debt itself. Graduates are spending the first decade, or more, of their adult life just trying to get out of educational debt, instead of saving for a house, for retirement or for their own kids’ college expenses.