Elizabeth Warren: Send the First Helicopter for Main Street

Econintersect: On 01 July 2013 interest rates for student loans are set to double from 3.4% to 6.8% unless congress takes action to renew expiring legislation. However, Senator Elizabeth Warren and Rep. John Tierney, both Democrats from Massachusetts, have proposed a more aggressive solution: Have the government administer the loans for one year using Federal Reserve Bank funds made available through the Fed’s discount window at the same interest rate available to banks. This would be the first flight for helicopter Ben to unload over Main Street should the bill ever get passed. The thinking behind the one year limit on the lending process is that time would then be available to work out a longer range student loan program.

The proposal has produce cheers of delight and howls of protest.

Cheers:

Nobel laureate Joseph Stiglitz –

“Most other industrialized nations make paying for college easier.”

Shehab Chowdhury, policy mic –

“Warren’s bill will now let a chance for the discussion to shift towards a meaningful debate.”

Ellen Brown, Web of Debt, President, Public Banking Institute –

“Investing in our young people has worked before and can work again.”

Ellen Brown has posted a full discussion article at Web of Debt.

Howls:

Erin Lahman, policy mic –

“The problem with this bill is that it’s repeating the same failed policies of minimizing lender risk through taxpayer subsidies while keeping interest rates artificially low to encourage more loans.”

Ian Tuttle, National Review –

“The bill is a duplicitous exercise in pandering.”

and

“shameless populist demagoguery.”

Matthew M. Chingos and Beth Akers, The Brookings Institute –

“a cheap political gimmick.”

Megan McArdle, The Daily Beast –

“it’s a populist values statement: we like students, we don’t like banks. As such, it’s probably going to be quite effective. But only among people who don’t know much about the banking system.”

The bottom line is that no one thinks the bill has a serious chance of even coming up for a vote, say nothing of passing.

Here is the text of the proposed Senate bill ( see also Tierney’s House bill, H.R.1979):

113TH CONGRESS
1ST SESSION S. 897
To prevent the doubling of the interest rate for Federal subsidized student
loans for the 2013-2014 academic year by providing funds for such
loans through the Federal Reserve System, to ensure that such loans
are available at interest rates that are equivalent to the interest rates
at which the Federal Government provides loans to banks through the
discount window operated by the Federal Reserve System, and for other
purposes.
IN THE SENATE OF THE UNITED STATES
_________
Ms. WARREN introduced the following bill; which was read twice and referred
to the Committee on _________
A BILL
To prevent the doubling of the interest rate for Federal
subsidized student loans for the 2013-2014 academic
year by providing funds for such loans through the Federal
Reserve System, to ensure that such loans are available
at interest rates that are equivalent to the interest
rates at which the Federal Government provides loans
to banks through the discount window operated by the
Federal Reserve System, and for other purposes.
1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
2
1 SECTION 1. SHORT TITLE.
2 This Act may be cited as the ‘‘Bank on Students
3 Loan Fairness Act’’.
4 SEC. 2. PROVISION OF FUNDS FOR 2013–2014 FEDERAL DI-
5 RECT STAFFORD LOANS.
6 Section 451 of the Higher Education Act of 1965 (20
7 U.S.C. 1087a) is amended by adding at the end the fol-
8 lowing:
9 ‘‘(c) PROVISION OF FUNDS FOR 2013–2014 FED-
10 ERAL DIRECT STAFFORD LOANS.—
11 ‘‘(1) IN GENERAL.—The Board of Governors of
12 the Federal Reserve System shall make available to
13 the Secretary, from the combined earnings of the
14 Federal Reserve System, the amount determined by
15 the Secretary to be reasonably necessary to award
16 Federal Direct Stafford Loans during the award
17 year beginning July 1, 2013, to all eligible students
18 in attendance at participating institutions of higher
19 education selected by the Secretary to enable such
20 students to pursue their courses of study at such in-
21 stitutions.
22 ‘‘(2) ADMINISTRATION BY SECRETARY AND
23 SIMILAR TERMS.—The Federal Direct Stafford
24 Loans funded under this subsection for the award
25 year beginning July 1, 2013, shall be administered
26 by the Secretary and shall be made in accordance
3
1 with the requirements, and be subject to all terms
2 and conditions, of this part, except that appropria-
3 tions provided under the first sentence of subsection
4 (a) shall not be used for any Federal Direct Stafford
5 Loans made during such period.’’.
6 SEC. 3. ADJUSTMENT OF FEDERAL DIRECT STAFFORD
7 LOAN INTEREST RATES.
8 (a) IN GENERAL.—Section 455(b)(7) of the Higher
9 Education Act of 1965 (20 U.S.C. 1087e(b)(7)) is amend-
10 ed by adding at the end the following:
11 ‘‘(E) REDUCED RATES FOR FDSL LOANS
12 DISBURSED ON OR AFTER JULY 1, 2013, AND
13 BEFORE JULY 1, 2014.—Notwithstanding the
14 preceding paragraphs of this subsection and
15 subparagraph (A) of this paragraph, for Fed-
16 eral Direct Stafford Loans made to under-
17 graduate students for which the first disburse-
18 ment is made on or after July 1, 2013, and be-
19 fore July 1, 2014, the applicable rate of interest
20 shall be the primary credit rate charged by the
21 Federal Reserve banks on July 1, 2013, for
22 purposes of sections 13 and 13A of the Federal
23 Reserve Act (12 U.S.C. 342 et seq.).’’.
24 (b) CONFORMING AMENDMENTS.—Section
25 455(b)(7)(D) of the Higher Education Act of 1965 (20
4
1 U.S.C. 1087e(b)(7)(D)) is amended in the subparagraph
2 heading by striking ‘‘FDSL’’ and inserting ‘‘FDSL ISSUED
3 ON OR AFTER JULY 1, 2006, AND BEFORE JULY 1, 2013’’.