U.S. Senator Elizabeth Warren (D-Mass.) on Wednesday introduced "Bank on Students Loan Fairness Act," a bill designed to lower the interest charged on federal student loans to the same rate paid by financial institutions.
Interest rates on these loans stands at 3.4% and will double in July unless Congress takes action regarding a student loan interest rate hike expected in July. Federal direct loans come with a fixed interest rate of 6.8% but loans to students showing a financial need are subsidized and carry a 3.4% temporary interest rate, which expires July 1.
Warren's bill is considered a preemptive strike at that possible hike. The bill would let students who are eligible for federally subsidized Stafford loans to borrow at the same rate that big banks get through the Federal Reserve discount window - 0.75% at this time.
“Let’s face it: Big banks get a great deal when they borrow money from the Fed. In effect, the American taxpayer is investing in those banks,” said Warren. “We should make the same kind of investment in our young people who are trying to get an education. Lend them the money and make them to pay it back, but give our kids a break on the interest they pay.
“The federal government currently makes 36 cents in profit on every dollar it lends to students. Add up all of those profits and you’ll find that student loans will bring in $34 billion next year.”
Congress must decide before July 1 whether to allow student loan interest rates to double, extend them for another year or consider Warren’s proposed fix.