Banking on Student Loans

The “Bank on Students Loan Fairness Act,” proposed recently by Massachusetts Senator Elizabeth Warren, aims to allow college students access to loans at the same low rates that big banks enjoy.

“Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75 percent. But this summer a student who is trying to get a loan to go to college will pay almost 7 percent,” the Bay State’s senior senator said when introducing the bill. “In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks—the same banks that destroyed millions of jobs and nearly broke this economy.”

“For one year,” Warren suggests, “the Federal Reserve [should] make funds available to the Department of Education to make loans to students at the same low rate offered to the big banks. This will give students relief from high interest rates while giving Congress time to find a long-term solution.”

Unless legislative action is taken, the interest rate on student loans is set to double, from 3.4 to 6.8 percent, on July 1.

Warren’s proposal comes amidst increasing concern over the rise in tuition fees, and the corresponding ability of universities, both private and public, to effectively offer their students a road to a more stable financial future.

“America is distinctive among advanced industrialized countries in the burden it places on students and their parents for financing higher education,” Amherst College grad and noted economist Joseph Stiglitz wrote recently in an Opinionator blog post for the New York Times. “America is also exceptional among comparable countries for the high cost of a college degree, including at public universities.”

While the average tuition at a four-year college has more-than-doubled since 1980, Stiglitz says, rising from $9,000 to $22,000, median family income during that time has stagnated, increasing only from $46,000 to $50,000.

According to an Inside Higher Ed survey from 2011, more than a third of administration directors make greater efforts to target students who can pay full tuition price, reports The Atlantic: “Colleges recruit more affluent [students] who will pay full price to attend … In other words, schools are becoming more reliant on the inequality in the system than ever before.”

A new policy paper published by the New America Foundation, Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind, found that “hundreds of public and private non-profit colleges expect the neediest students to pay an amount that is equal to or even more than their families’ yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return.”

“As more states cut funding for their higher education systems,” the paper continues, “public colleges are increasingly adopting the enrollment management tactics of their private college counterparts—to the detriment of low-income and working-class students alike.”

(Originally appeared in The Valley Advocate.)

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