By Taylor Armerding
— College graduates facing a crushing debt – some more than $100,000 – is a very big and a very real problem.
But U.S. Sen. Elizabeth Warren’s recent proposal to deal with it won’t solve the problem. It is a cheap ploy to divert attention from the real problem.
If the former Harvard Law hotshot professor and now superstar senator from Massachusetts really wants to deal with crushing student debt, the place to start is not by beating up on banks. She and her academic colleagues should start by looking in the mirror. They, along with an allegedly compassionate government, are the real causes of the problem.
Sure, banks are an easy target. We’ve all been told that they (along with their “crony,” President George W. Bush) took down the American economy. We have endlessly heard about how greedy and venal they are. Sen. Warren keeps talking about how the middle class is getting “hammered” and how banks are the chief villains in all that hammering.
Maybe in some cases that is true. But when it comes to student debt, Warren is playing the same old political game she pretended to disapprove of when she was running for office — shift the blame for a problem by distraction: Hey, look over there! A big, bad bank!
There is nothing good for college students about Warren’s first piece of legislation, hilariously titled, “The Bank on Students Loan Fairness Act.” Yes, Liz is all about fairness, as long as she gets to define it.
Her bill is designed to look good to anybody who doesn’t bother to scratch the surface. It would cut the 3.4 percent interest rate on federally subsidized Stafford loans — scheduled to double to 6.8 percent in July — to 0.75 percent.
Her argument is, “If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class.”
Sounds great. But it is nothing but deceptive demagoguery. It didn’t even convince the left-leaning Brookings Institute, which labeled it a “cheap political gimmick.”
Indeed, for somebody who is supposed to be such an expert on finance and banking, the gentlest description of Warren’s stance is that it is deliberately disingenuous.
The interest rate Warren is talking about is from the so-called Federal Reserve Discount Window, which is used to make short-term loans to banks to “meet temporary shortages of liquidity.” Those loans are also secured with plenty of collateral — if the banks don’t pay it back, the lenders can seize their assets.
Students put up no collateral for a long-term loan — a decade or more — other than a promise and the supposition that they will get a higher-paying job than if they didn’t go to college. And they are an increasingly poor risk. The Department of Education anticipates that 23 percent of the subsidized Stafford loans it makes this year will default.
Could Sen. Warren be advocating toxic loans? Does she want to wreck the economy?
It is not just the misleading elements of the bill either. The new interest rate would apply only to new borrowers, not the thousands already carrying loans. It would expire in one year, setting up yet another manufactured “crisis,” when she and her fellow Democrats will complain that Republicans want to “quadruple student loan interest rates!” if they won’t vote to extend it again.
Worse yet, it is another incentive for students to go into even more debt. A low interest rate is much more attractive than a high interest rate, but the real problem is the debt itself. Graduates are spending the first decade, or more, of their adult life just trying to get out of educational debt, instead of saving for a house, for retirement, or for their own kids’ college expenses.
And college costs have been outrunning inflation for decades. As has been noted repeatedly, but apparently not enough for Warren to notice, overall inflation since 1986 is just over 115 percent. College tuition has increased almost 500 percent.
Why is that? It might have something to do with tenured faculty (not adjuncts!) being paid more to work less. You know, kind of like Elizabeth Warren being paid $350,000 to teach a single course at Harvard Law.
It might have something to do with senior professors at the nation’s most elite universities getting sabbaticals every third year instead of every seven — when virtually all of those in the “hammered” middle class get no sabbaticals at all.
It might have something to do with college administration costs increasing at twice the rate of overall expenses.
And it definitely has to do with ever-increasing government student loan programs that don’t make college any more affordable for the middle class because as soon as the colleges know the kids have more money to spend, they raise their prices some more. The only people being helped by those loans are those in academia. The students are nothing more than a conduit for it.
But you won’t hear that truth from Sen. Warren. She’s hoping you’ll think the banks are to blame.
The only good thing about it is that this stunt is not even going to convince her liberal colleagues in the Senate. Word is, her bill has no chance of passage.
— Taylor Armerding is an independent columnist. Contact him at firstname.lastname@example.org.