The next big financial bubble can be popped.

Education can be an individual’s or a nation’s greatest investment. We talk about the disparity between the  public education provided to students with fewer economic resources and those who have greater financial means. We also talk about gender differences in that young women are often steered away from  Science, Technology, Engineering and Mathematics (STEM) fields of study. No matter what the angle, financing education often becomes a bigger hurdle than the area of study.

Senator Elizabeth WarrenYesterday, those of us watching witnessed something that’s become a rarity these days: a senator doing the job constituents elected the representatives to do. Senator Elizabeth Warren (D-MA) argued on the floor of the Senate that it is unjustifiable to allow banking institutions, which borrow federal funds at a virtually interest-free rate (the Fed discount window rate is currently 0.75%), to charge students 7% on student loans.

Looking at the current financing method, it can be argued that the current system and attempts to increase interest rates on student loans is simply yet another means of balancing our budget on the backs of the poorest Americans… again. The student loan controversy stems from the College Cost Reduction and Access Act of 2007 which reduced the fixed interest rates on newly originated subsidised Stafford loans for undergraduate students only, from 6.8% in 2007 down a sliding scale until they hit 3.4% in the 2011-2012 school year. These cuts were only for subsidised Stafford loans and all Stafford loan rates were set to go back to 6.8% in July 1, 2012. At that time, advocates who were aware of the financial bubble caused by staggering student loan debt tried to extend the rate cuts because they cost the government a staggering $6 billion per year.

Senator Warren made a move on this yesterday by asserting in her first bill a provision that would allow students with Stafford loans to pay the same rate as banks for a year, beginning on July 1st. When she said, ”In other words, the federal government’s going to charge interest rates nine times higher than the rates they charge the biggest banks — the same banks that destroyed millions of jobs and nearly broke the economy,” she couldn’t have been more correct. We need not forget that banks have behaved badly and reaped substantial benefits after helping to tank the nation’s economy. The least that can be done at this point is helping steer the next generation away from overly burdensome debt that, in the long-run, costs all of us.

 

  .