Student Loans Tied to Rise in Market Rates While Wall Street Banks Have Received a Fixed 6% Return from the Government for the Past Century

By Pam Martens: July 25, 2013 

Senator Bernie Sanders Says Proposed Student Loan Legislation Sends the Message to Working Families That If You Want to Borrow Money to Send Your Kids to College, We Are Going to Make $184 Billion in Profits Off of You

Yesterday, the U.S. Senate, controlled by the Democrats, joined the U.S. House of Representatives, controlled by the Republicans, in proving to Americans that political labels mean very little when it comes to Wall Street’s protection racket in Congress. Both houses of Congress have agreed on a plan to let interest rates on student loans fluctuate with financial markets, replacing the low fixed rate of 3.4 percent students previously enjoyed until July 1 of this year. 

Under the Senate plan, the student loan rate is pegged to the 10-year Treasury note, with caps set extraordinarily high at 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for student loans taken out by parents. Wall Street, which also finances student loans, is very pleased with this outcome as it makes its rates more competitive with what the federal government offers. Sixteen Senate Democrats voted against the plan. 

If signed into law by President Obama, an outcome which seems assured since he lobbied in favor of the plan, rates will reset annually. Loans taken out after July 1 of this year will rise to 3.9 percent for undergraduates; to 5.4 percent for graduate students; and to 6.4 percent for parents taking out the student loans. 

Students currently owe over $1 trillion in debt incurred for higher education while facing stiff headwinds in finding a job in the lingering aftermath of the Great Recession. Under the proposed legislation, according to Senator Elizabeth Warren, official government estimates show that the federal government will make $185 billion in profits over the next ten years. Clearly, there is room to keep rates low for students while also keeping rates fixed. 

When it comes to Wall Street’s biggest banks, the federal government has no problem in keeping rates fixed and comfortably certain. On December 23 of last year, the Federal Reserve marked its 99th anniversary. Throughout that period, the Federal Reserve Board of Governors has paid Wall Street’s biggest banks a fixed 6 percent dividend on the capital the banks are required to hold at the Fed. For 99 years.  

While these same banks pay out less than 1 percent to their depositors, to the holders of their mortgage escrow accounts, and charge upwards of 15 percent to millions of Americans on credit cards, the federal government has not revisited the issue of paying the big bailed out banks less than their guaranteed rate of 6 percent. For struggling students buried in debt and faced with the worst job market since the Great Depression, the President elected by the Democrats and the Democrat-controlled Senate have no problem  adopting a plan to bury our young people further under debt, making their future even bleaker than the one delivered to them under the 2008-2010 taxpayer bailouts of Wall Street’s corrupt hubris. 

Senator Bernie Sanders, an Independent from Vermont, and Senator Elizabeth Warren, Democrat from Massachusetts, spoke out stridently against the plan. 

Calling the plan “counterproductive” and “dumb,” Sanders said “We have a middle class which is disappearing. The number of Americans living in poverty is near an all-time high. We have millions of families struggling to be able to send their kids to college. So what is the United States government doing? We are helping to balance the budget by saying to middle-class, working families that if you want to borrow money to send your kids to college we are going to make $184 billion in profits off of you.” 

Senator Warren said “I cannot support a plan that asks tomorrow’s students to pay drastically more in order to finance lower rates today. And I cannot support a plan that raises interest rates on students in the long term while the government continues to make a profit off of them.” 

See Related In-Depth Article: Kill This Entitlement Program: The 6% Risk-Free Dividend the Fed Has Been Paying Wall Street Banks for Almost a Century 

Bookmark the permalink.

Comments are closed.