Finally a bold initiative in the student loan crisis! Senator Elizabeth Warren launched her very first piece of legislation last week and it’s intended to set the public student loan interest rate at the same rate the Federal Reserve offers to banks – known as the Fed funds rate. How low is this rate at present? .75%! This could be a real game changer considering that many loans currently at 3.4% are set to double to 6.8% in July.
Warren told Huffington Post, “Every single day, this country invests in big banks by lending them money at near-zero rates. We should make the same kind of investment lending money to students, who are trying to get an education.” It’s a huge shakeup of the status quo, but Warren thinks she can push it through if all those who are hardest hit by student loans push their legislators to support the bill.
Over the past decade, student loan debt has almost tripled. Add to that the impacts of the recession, unemployment and underemployment of many college grads and you’ve got a mess. Home ownership is down, people aren’t buying cars and money that could be stimulating the economy is instead going to service this debt while our nation continues to struggle. Sounds like a shakeup is exactly what we need!
When launching her bill, Warren asked, “Why not let them [students] in on the same great deal that the big banks get?” Warren’s plan is sound and one we applaud. She’s advancing a great notion – that our government shouldn’t subsidize banks – that then use the cheap funds to make profits off all of us – when we’re not investing in our youth and our future.
After all, considering how badly banks have misbehaved in recent years, they aren’t really worthy of such an investment. Of course, if we raise rates on banks, they’ll raise rates on us, so that’s not the answer. Instead, why not subsidize our students? One doesn’t preclude the other.
In case you’re wondering if Warren’s proposed legislation is a big deal, here’s the difference it would make on the average student loan with a balance of $27,000:
Standard Repayment Plan (10 Years)
Monthly Payment at 6.8% Interest: $310.72
Total Interest Paid Over Life of Loan: $10,285.87
Monthly Payment at 3.4% Interest: $265.72
Total Interest Paid Over Life of Loan: $4,887.44
Warren’s Proposed Plan (10 Years)
Monthly Payment at .75% Interest: $233.61
Total Interest Paid Over Life of Loan: $1,033.60
If your loan was at 6.8%, the Warren plan will save 90% in total interest. That’s a savings of $9,250. If your loan was at 3.4%, you’ll pay 79% less in total interest and save $3,853! And if monthly payments are still too steep under the Warren plan, this much lower interest rate will make income based repayment (IBR) even more manageable.
Senator Warren believes (and we agree) the best chance for S. 897 to gain passage is for all those who have been impacted by student loans to raise their voices – whether you’re still paying them off, just starting to borrow or are in the midst of struggling with your debt! Warren says, “This is about their lives and if they are active in this fight, we can make this change.” We hope so!
We encourage you to reach out to your Senators about Senate Bill 897, commonly called the “Bank on Students Loan Fairness Act.” First, ask them to vote “yes” on S. 897 and second, ask them consider co-sponsoring the bill to help it gain visibility and momentum.
Also, if you’re juggling loan payments and need to get a grip on your student debt, download Tuition.io’s free student loan tool to view, manage and optimize your debt! Please enjoy these other recent blogs on related topics: