Elizabeth Warren was elected to the Senate with the expectation that she’d make bold use of her bully pulpit. Her first proposed bill, which would dramatically lower student-loan interest rates, fits that profile. Warren has gotten considerable attention for her bill, which would reduce the interest rate on some student loans to 0.75 percent, the same rate the Federal Reserve currently charges to banks for short-term lending. This has allowed Warren to talk about the need to invest in education, while also — in something of a non sequitur — criticizing big banks for what she has long complained is favorable treatment from the government.
Warren’s proposal isn’t as far-reaching as her rhetoric suggests. The bill applies only to Stafford loans, a common form of federally subsidized college loan available to low- and middle-income families. It is intended as a stopgap measure to stave off an automatic rise in Stafford interest rates: If Congress takes no action by July 1, the interest rate on new Stafford loans will double, from 3.4 percent to 6.8 percent. Critics worry, with some justification, that rock-bottom interest rates on student loans would exacerbate the bubble in higher-education pricing — encouraging students to go into even greater debt, and discouraging colleges from lowering tuition costs. But the Stafford loans alone aren’t likely to cause a huge distortion. The loans are currently capped at $8,500 per year. Warren’s bill would only apply to new loans, and would only be effective for one year.
In other words, the bill is designed to address a short-term problem while drawing greater attention to the broader and troubling crisis of student debt. In an ideal world, it would prompt Congress to look at more comprehensive solutions, from finding levers that encourage colleges to curb their prices to allowing student loans to be more easily consolidated. Still, Warren should tread carefully as she feels out the balance between committing political theater and working constructively with her Senate colleagues. She has gotten the attention she desires; now, she should follow up with an effort to draw other senators into a conversation about serious education finance reform.
Congress has a number of mechanisms to address an untenable student-loan situation, starting with requiring colleges to provide students with more information on the details and implications of the loans they’ll be taking out. Many students are unaware of opportunities that already exist to alter their payment schedules. And the government could go further in helping those who are currently in debt to manage their finances through consolidation and deferment. Meanwhile, stricter scrutiny of higher-ed institutions — by both loan applicants and loan approvers — might prompt some students to reject the entreaties of disreputable or low-quality institutions, and give all students an incentive to take out loans only for programs that help them achieve concrete ambitions.
Warren deserves credit for jump-starting a debate with implications for millions of students, thousands of institutions, and the future of the US economy. Now, Congress needs to follow through.