US Senator Elizabeth Warren and Representative John Tierney rallied Northeastern University students Monday to speak out against a looming interest rate hike on student loans.
If Congress fails to act by July 1, the rate on federally subsidized Stafford loans, need-based funds for undergraduates, would double from 3.4 to 6.8 percent.
With debate over student loan legislation in Congress heating up, Warren and Tierney urged students to put pressure on their representatives to support bills that would halt the increase. They highlighted their own Bank on Students Loan Fairness Act, which Warren recently introduced in the Senate and Tierney cosponsored in the House.
The bill would allow college students who take out new Stafford loans to pay an interest rate of 0.75 percent. That is the same rate banks pay to the Federal Reserve for short-term loans.
“Right now, the US government is out there investing in large financial institutions, offering them money every single night [for] three quarters of 1 percent, and yet our students, if the government doesn’t do something, will be paying nine times that much,” Warren said to an audience of about 70 students and staff at the Northeastern Visitor Center.
“It is a bad idea economically, and more importantly, it is a bad idea morally. This is not who we are as a people,” she added to applause. “We invest in the future, and that means we invest in our kids.” The Fairness Act is Warren’s first proposed bill in the Senate.
The 0.75 percent rate would only apply to new loans and be effective for one year while a long-term policy is formulated. Students with existing Stafford loans would keep the current rate.
Dylan O’Sullivan, a recent Northeastern graduate who hopes to work as a public servant, prefaced Warren and Tierney’s statements with his own story as a Stafford loan recipient.
“I remember how happy I was when I got my financial aid package, and I knew I was going to be able to make it work, because I knew I wasn’t going to have a ton of money when I graduated if I wanted to work on Capitol Hill,” said O’Sullivan. “I have some debt to deal with, but if those interest rates had been higher, I might not be able to pursue the career I’m working toward now.”
Northeastern sophomore Allison McIntyre, a Stafford loan recipient, said, “It didn’t really matter where I got into college. I wouldn’t have been able to come here without the loans I got freshman year, and I’m worried about those increases for future students.”
Warren’s bill is one of several Democrat-led Senate proposals aimed at halting the rate hike.
The House has passed a GOP bill that would allow interest rates to shift from year to year with the government’s cost of borrowing, linking loans to the market, rather than fixing them by law.
In regard to that market-based approach, Tierney said, “the fundamental crux of this issue is that some people think that we ought to be running student loans as a business-making enterprise.”
The government will make $51 billion from federal student loan borrowers this year, according to a May Congressional Budget Office report.
Critics of the Fairness Act say that fixing the interest rate by congressional action is a mistake.
“Tying the student loan rate to market interest rates gets Congress out of the business . . . and avoids silly political theater,” said Brookings Institution researcher Matthew Chingos, who supports the House GOP bill.