Wednesday, May 08, 2013

Fauxahontas knows the solution for student loan debt: more cowbell

Student loan debt has hit a record high and now outpaces both credit card debt and car loans, driven in part due to the spread of for-profit schools which disproportionately account for a large share of loan defaults.  How to address this issue?  Elizabeth Warren says let's make student loans nearly free:
Speaking on the Senate floor Wednesday, Warren said that as her first bill, she was introducing legislation that would set the interest rate on subsidized Stafford student loans at the same rate banks borrow from the Federal Reserve.
Calling the increasing amount of student debt a "quiet but growing crisis," Warren said her bill would bring some much-needed fairness to students, while highlighting the low rates banks enjoy from the federal government.
It's the old "fairness" and "damn banks/oil companies" one-two punch that is a Warren specialty.  If only there were a recent historical analogue where extremely low interest rates caused a cycle of borrowing, rapid devaluation and default.

Extra - Prof. Jacobson: "But the principal still needs to be paid back, so unless student loan forgiveness is the next step (probably), enabling students to borrow more money cheaply in order to subsidize tuition increases makes the bubble worse."


Anonymous said...

Which 5 or 6 deregulated college students are going to commit fraud and wreck the economy? If we can figure out their names, we can stop them, this time.

Anonymous said...

@ anon: which students would be able to post collateral worth 100% of the loan amount and then repay the loan within 14 days?

Because those are the terms for the primary credit discount window loans that Warren is referencing.

Anonymous said...

Easy, just charge the students the same 0.0% interest for the same government loans that the banks get. Presto, the students have all the collateral they need. For anything.