Student Loan Rates-- Who's To Blame?

Only 4 New Dems voted for the Republican plan to tie student loans to market mechanisms that won't just double them, but could actually triple the rates-- all in the name of their deranged ideology of Greed and Selfishness! And, with the help of the corporate media-- and a few very wealthy, bumbling conservative Democrats in the Senate-- it's another situation where "both sides" are getting the blame by the public. Look at the simple chart up top that shows the Democratic plan and the Republican plan side by side. Enough said?

Elizabeth Warren's original plan-- charging students the same rate that the biggest banks pay for their loans from the Fed-- 0.75%-- is easily the best solution, but way too bold for Washington's conservative consensus. So now a bunch of millionaires in the country's most exclusive club are coming up with a compromise that will impact the futures of the sons and daughters of Americans who these senators will never be able to understand or relate to. Senator Warren was furious at corporate whores in her own party-- Joe Manchin (WV), Tom Carper (DE) and Angus King (ME)-- for their eagerness to help the Republicans further confuse the situation-- and, more importantly, burden working families with more outrageous debt by pegging the loan rate to 10-year Treasury notes... which are right on the verge of big increases. The Senate Democratic plan-- a compromise between Warren's proposal to lower the rates and the GOP/Manchin plan to allow "the market" to jack them up-- is to freeze the rates at 3.4% for another year.

“Elizabeth came out very strong against Manchin,” said a Democratic senator who requested anonymity to discuss the exchange. “She said, ‘They’re already making money off the backs of students, and this adds another $1 billion.’”

...Sen. Tom Harkin (D-Iowa), the chairman of the Health, Education, Labor and Pensions Committee, stood up to announce to colleagues that a fact card passed out by Manchin summarizing his proposal contained two mistakes.

Harkin disputed Manchin’s claim that, under the bipartisan proposal, the interest rates for new Stafford loans would be 3.66 percent. Harkin said that claim failed to reflect that under the Manchin proposal, the rates on undergraduate Stafford loans would hit 7.1 percent by 2019.

Under the law that expired on July 1, the rate for subsidized Stafford loans was 3.4 percent. It has jumped to 6.8 percent and will remain at that level until Congress acts.

Harkin also hit Manchin for claiming the bipartisan plan places a cap on interest rates.

The bipartisan proposal in the Senate would cap student loan rates at 8.25 percent, but only for consolidated loans, not individual ones.

Manchin and his allies, Carper and King, pushed back against the pressure. They took the rare step of holding a competing press conference with reporters in the Ohio Clock corridor while Senate Majority Leader Harry Reid (D-Nev.) touted a separate Democratic proposal to reporters. That plan, sponsored by Sen. Jack Reed (D-R.I.), would freeze the rate for subsidized Stafford loans at 3.4 percent for another year.

The bipartisan plan endorsed by Manchin and the others would set interest rates for undergraduate Stafford loans at the 10-year Treasury rate plus 1.85 percent. It would set the rates for unsubsidized graduate Stafford loans at the 10-year Treasury rate plus 3.4 percent.

It would reduce the deficit by $1 billion over 10 years, which Warren and other liberals have characterized as balancing the budget on the backs of students.

...While Manchin, Carper and King stood only a few yards down the ornate corridor outside the Senate chamber, Reid drew a line, declaring he would only back a plan that guarantees student loan rates will remain below the current 6.8-percent rate.

“I’ve told my caucus, I’ve told individual senators, if you can explain to me why doing something is better than doing nothing, then we’ll do it,” he said. “All the proposals, within two years, at the outside three years, make the rate more than 6.8 percent.”

Backers of tying the loan rates to Treasury bonds point out that it would result in lower rates now, but Reid said that interest rates are just now beginning to rise from all-time lows, with nowhere to go but up.

“We have the lowest interest rates we’ve had in the history of this country,” he said. “Interest rates are going to go up, and who’s going to suffer from that? Students.”

In an OpEd published just before today's vote, Senator Warren was joined by Jack Reed (D-RI) is advocating on behalf of students and working families and against the Greed and Selfishness mentality of conservatives on both sides of the aisle.

First, we must deal with the immediate problem by implementing a one-year patch to keep student loan rates at their previous level of 3.4 percent. This legislation is an investment in college students that keeps them from being hurt while Congress negotiates a long-term solution. The lower interest rate is fully paid for by closing a single tax loophole that provides inordinate benefits to the wealthiest.

Second, we will use the next year to reform our student loan system: eliminating profits from student loans, stemming the rising cost of college and alleviating the burden of student debt on existing borrowers through refinancing and better consumer protection.

This plan gets to the core of the college affordability problem, looking at all of its facets rather than focusing solely on interest rates for new loans.

Unfortunately, some senators are backing a bill that would cause interest rates on student loans to drop for a few years before they rise sharply, with no cap on interest rates, leaving students vulnerable to skyrocketing costs. They are asking students to focus on the low rates they'd possibly get in the first year or two and ignore the long-term consequences.

In the world of mortgages, this was called a teaser rate - and this is the kind of mortgage deal that nearly crashed our entire economy.

The student loan program already reaps big profits for the federal government. This year alone, student loans will bring in an estimated $51 billion in profits - money that comes straight from the pockets of college students and their parents.

If you're wondering why the federal government is generating mega-profits off of a program that is supposed to help our students, you're not alone. And yet that's exactly what this group of senators proposes: more of the same.

Their bill, the Bipartisan Student Loan Certainty Act, makes an additional $1 billion in profit from our college students. That's in addition to the $184 billion the new federal student loans already are set to bring in over the next 10 years.

At a time when borrowers are already carrying $1 trillion in student loan debt, this is bad economics. The Federal Reserve warned in March that student loan debt threatens America's economic recovery. And it's bad for our long-term prospects too: At a time when our economy's stability depends on having a highly skilled workforce, we should be investing in our students, not profiting from them.

It boils down to this: The Senate has two different plans on the table. One keeps making profits off outstanding student loans and boosts profits on new ones while enticing students with a couple of years of low interest-- risking an economic calamity. The other puts us on a responsible path, keeping rates low on new loans and working to end the profits the government makes on outstanding loans.

Today, Senate Republicans filibustered the Democratic proposal to keep the student loan rates at the same low rate. The attempt to end the filibuster failed 51-49, all the Republicans voting NO. And, disgracefully, they were joined in their filibuster by Manchin (WV) and King (ME). Don't people send their kids to college in West Virginia and Maine? These were Senator Warren's remarks right after the GOP filibuster doomed students to higher rates: "I’m frustrated the GOP has once again blocked a sensible compromise proposal to keep interest rates on student loans from doubling. The federal government continues to make billions of dollars in profits off the backs of our students-- producing higher profits than any Fortune 500 company-- but the GOP’s proposal would make another billion on top of that, continuing to squeeze our students to cover other government costs. It’s unbelievable that Republicans would demand $40 billion for a new border fence, yet refuse to invest a single dime in a better future for our kids and our economy."

The short video below has Bernie Sanders explaining the whole problem to Ed Schultz last weekend-- before Manchin, Carper and King went over to the Republican side and before today's disastrous vote: