Elizabeth Warren made headlines last week for saying that she believed students should pay the same rate for loans as big Wall Street banks, 0.75%.
The Obama administration extended 3.4% interest rate on subsidized federal student loans last year, but that measure is set to expire in July leaving room for reform. The House Republicans, The President’s Office, Democratic Senators Jack Reed (D-RI) and Dick Durbin (D-IL), and Senator Elizabeth Warren.
Think tank The Brookings Institute laid down each plan one by one. The only one it doesn’t take seriously at ALL is Warren’s.
Sen. Warren’s proposal should be quickly dismissed as a cheap political gimmick. It proposes only a one-year change to the rate on one kind of federal student loan, confuses market interest rates on long-term loans (such as the 10-year Treasury rate) with the Federal Reserve’s Discount Window (used to make short-term loans to banks), and does not reflect the administrative costs and default risk that increase the costs of the federal student loan program.
Setting aside this one embarrassingly bad proposal, the remaining proposals raise a set of questions that need to be answered in order to select the ideal policy…
Ultimately, Brookings advocates for (shocking) a compromise. The Obama plan allows the rate to move with market conditions (as do the House Republicans). The two plans differ in that Obama does not want the rate to vary over the life of the loan (House Republicans do).
Durbin and Reed’s plan looks a lot like the House Republican plan, but puts a cap on interest rates and uses a different benchmark for the rate — the 91-day Treasury rate plus a percentage determined by the Education Secretary to cover administrative costs rather than 10-year Treasury Bonds.
But again — Warren proposal is nowhere.