Liberal Democratic senators expressed firm opposition to the bipartisan student loan deal in its current form, which gained President Obama’s official support Tuesday.
“Did students put two wars on a credit card, Mr. President?” asked California Democratic Sen. Barbara Boxer on the Senate floor Wednesday. “Is that why they have to be punished here?”
The bipartisan loan deal would index interest rates on Stafford student loans to the financial markets, reducing the rate on undergraduate loans from 6.8 percent to 3.86 percent, although it could increase in subsequent years. The bill would also place an absolute cap on interest rates, keeping them lower than 8.5 percent for undergraduates and 8.25 percent for graduates.
But liberal Democrats refuse to support the plan unless it includes a provision sponsored by Massachusetts Sen. Elizabeth Warren and Rhode Island Sen. Jack Reed that would lower the cap to 6.8 percent for most loans.
Since the federal government can currently borrow at a cheaper rate than what it costs to loan money to students, the government is projected to make a $50 billion profit on the loan program this year. Boxer opposes this, and said the government should not make money off struggling students.
But Andrew Kelly, an education scholar at the American Enterprise Institute, said the issue isn’t so clear cut.
“All of this deficit reduction talk is based on this notion that we have this big pot of profit to sprinkle around and pay down the deficit from the student loan program, but that all depends on how we do the accounting,” he said in a statement.
Warren, who previously pressed for student loans to be subsidized at the same rate as bank loans, does not want the government to make money off student loans, or treat banks more favorably than student lenders.
“When it comes to the banks, hundreds of billions of dollars, no problem,” said Boxer. “Too big to fail.”
But financial experts worried that low interest rates would only encourage more reckless borrowing, incentivize universities to raise tuition in response, and further inflate the student loan bubble.
National Review called for Congress to stop tinkering with student loans, and instead privatize them entirely.
“If the federal government or the states want to give needy young people money to help them to attend college, then it would be best just to give them the money rather than to entangle them in debt,” wrote the editors.
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