Elizabeth Warren Wants to Lower Student Loans to .75%

And that I'm already paying taxes for public education. What this tells me is that the government is acknowleding that public education expenditures have been a waste (that is, they haven't had their intended results), so they need to print more money to make it cheap for the kids that have been wronged by the public school system to continue their education.

 

That's certainly an issue - we have a system that is spiraling out of control as far as costs go. That's why I suggested tying loan rates with schools' ability to control their tuition rates and job placement rates.

How so? That's true of investments, but not of loans. Unless you're talking about simply charging higher rates to the higher risks, which is true - but then you again create a system where the poor are being placed at an educational disadvantage.

It's not righting an injustice. It's creating a system that we feel is best for the country. Having a permanent poor class with limited possibility of advancement is generally not what people want from the country. That's why we have free public education in the first place. What if K-12 isn't enough anymore?

Either that, or it's a recognition that society is changing and a K-12 education is no longer enough of an education for people in modern society. We're moving to a knowledge-based economy, so some people believe that government has an obligation to do things to help provide that knowledge. Back in the 1800's, you could likely get by on an 8th grade education. In the 1900's, you could get by on a 12th grade education. We're moving towards a world where you will need a college (or some kind of trade school) education to get by in the 2000's.

 

For a bank, it is an investment. The interest rate is their rate of return. It costs more for the risky borrower, but returns more for the person taking the risk (the bank).

The obvious solution is to make K-12 better. That should be the starting point. You'd think that they could teach a kid quite a lot about manners, society, using their money wisely, paying taxes, and training them for the new economy, but that isn't the case. Manipulating financial markets and incentivizing debt for the young seems like a worst-case solution to taking what they already have and improving it. That is, if they can.

 

I have a question. Does that opportunity cost of receiving an education happen to be more than 2.4 million dollars?

 

Because only the government can conjure up silly schemes. The free market is never guilty of these "silly schemes".....

 

Dunno what student loan rates should be but I'm pretty tired of the policies of this country the last 30 yrs at the helm of the boomers and their elected officials.

This feels like a money grab and pretty unsustainable. I like and agree with the spirit of the proposal though.

 

Y'know what, Liddy, have a green square.

 

No. Some people either can't go, or need to just apply to a cheaper school, maybe even in a crappy part of the country. This is still the sweetest deal in the free world (deferred, unsecured credit for the most lucrative job training possible) regardless.

I still think they should be as freely available (high volume and low credit standards) as always, though. Maybe a compromise would be to allow private citizens to participate as additional syndicated lenders, or co-signers for a fee.

 

I would be in favor of a student loan rate that is calculated at the overnight rate plus a premium tied to the historic rate of nonpayment.

The USSC took up a similar argument in a bankruptcy case in SCS Credit v. Till. The Court opined that a proper rate would be a baseline rate (prime, overnight, 90 day T bill) and add a risk premium of between 1 to 3% for the risk of nonpayment.

With some tweaking downward, a similar approach could be taken for student loans. My loan rate is 2.6%, which I find to be fair.

 

Would rather spend the money on making tuition cheaper in the first place. Why go indirectly on solving the problem, it costs more that way.

 

I definitely like the idea of making the tuition cheaper to begin with.

 

I do not know how the federal government can mandate a specific tuition figure for state supported institutions. Any figure would be arbitrary and would have no bearing on the costs of operating an institution. Older schools and larger schools have a lot more expense in maintaining buildings and facilities than newer and smaller schools.

Also, tuition rates vary by state. Texas schools are cheaper than California schools. So, where do you make the acceptable tuition line? If it is drawn less than CA tuition, but more than TX tuition...you help CA students but either fail to help TX students or harm them by causing the schools to raise tuition to match the line.

 

Sounds like this problem could be better served on the State level, huh?

Let's leave the Federalis out on this one.

 

If we're talking narrowly about mandating tuition amounts at state universities. But that has no bearing on federal student loan guarantees, which state governments are ill-equipped for.

 

Not sure if what you seem to be implying is actually going into affect - lowering of government spending. The lowering of interest rates paid by student loan borrowers should reduce government income earned on money lent to students.

Her idea is to increase the volume of lending by lowering interest rates. The Fed similarly has a policy of low interest rates in order to raise demand. So this should actually increase government student loans - though I do not think such loans are counted as spending. So, kind of a moot point, glynch.

 

Senate Democrats propose student loan bailouts
12:15 PM 05/22/2013

Robby Soave

Following closely on the heels of Massachusetts Democratic Sen. Elizabeth Warren’s recent proposal to subsidize student loans through the Federal Reserve, another senator is taking aim at student loan debt with a bill that would give a borrowers a huge break but leave taxpayers scrambling to make up the difference.

New York Democratic Sen. Kirsten Gillibrand introduced a bill this week that requires the Secretary of Education to offer borrowers the chance to refinance their loans at a flat interest rate of 4 percent. This would lower the debt obligations of 9 out of 10 borrowers, according to The Huffington Post.

“At a time when corporations, homeowners and even local governments are refinancing at historically low interest rates and saving millions of dollars, students and families who take out loans to pay for college are getting left behind,” said Gillibrand in a statement. “Ensuring that our graduates are not saddled with unmanageable debt by keeping interest rates low is just common sense.”

Such a break for students and graduates would come at a tremendous cost to taxpayers, however, since the current, higher interest rates generate a massive profit for the government. If rates are left unchanged, the Department of Education will make $51 billion off of student loans in the coming year.

Gillibrand’s legislation would also cut into the profits of Sallie Mae, a lending firm.

The senator has asked the Congressional Budget Office to calculate the cost of the bill to taxpayers before she proposes a way to pay for it.

Interest rates on student loans are currently set by Congressional order. Warren is sponsoring a bill that would set interest rates at .75 percent for one year, paying the difference via a direct subsidy from the Federal Reserve. Her thinking is that college students deserve the same treatment as big banks that are able to borrow money from the Fed at extremely low interest rates.

But college students are much more likely to default on their debt, making them a less trustworthy investment, said Alex Pollock, a fellow at the American Enterprise Institute.

“Going forward we will see in excess of 20 percent lifetime defaults, maybe 30 percent, and that’s even counting that the government rigs the rules so that when you measure defaults they make it very easy to get over the hurdle by giving various forgiveness and exemptions,” he said in an interview with The Daily Caller News Foundation.

A fair market loan rate should be based on careful analysis of risk factors like default and delinquency rates, not politics, he added.

“Until you do that there’s really no point in talking about this rate or that rate in my opinion,” Pollock said.

Forgiving some student loans is gradually becoming a policy goal of President Obama, who enjoyed the support of countless indebted college students in his successful presidential elections. Now these young people are increasingly pushing Democratic politicians to do something about their debts.

Obama’s own plan would increase enrollment in income-based repayment plans, which allow low-income workers to receive some debt forgiveness, according to The Wall Street Journal.

The average loan debt per graduate rose to $30,000 this year–double what it was 20 years ago — according to a recent analysis.

 

Sounds like a great idea to me, glynch, and kudos to Ms. Warren for suggesting it. We need to encourage higher education in this country, and you shouldn't have to be in debt up to your eyeballs for a couple of decades in order to have one.

 

4% seems manageable

 

Not really, labor markets will encourage/discourage the type of education that's demanded. Perhaps it's a gender studies degree, perhaps not.

so your solution is bailout? so the rest of us stiffs assume the debt?

Notice how there is zero thought to lowering academic salaries or tuition.

 

Speaking of labour markets and academic salaries---

ra ra fat cats, let's cut professor salaries, that's the solution.

Aren't we punishing and bullying the professors?