President Obama will give his State of the Union address tonight and is expected to address the student loan crisis. In anticipation of that event, Senators Elizabeth Warren and Charles Schumer came on CNN television this morning to speak about student loans, and both said ABSOLUTELY NOTHING!
First of all, both mouthed the old canard that the government is making a profit off the student loan program because it is lending money at a higher interest rate than it pays to obtain the money. It is true that the interest rate on the 10-year treasury note is about 2. 2 percent, while the federal student-loan program charges approximately 6 percent.
But of course, the government is only making a profit on student loans if students pay back the money--and a high percentage of them do not.
As the Brookings Institution reported recently, 47 percent of the students from a recent cohort who borrowed money to attend for-profit colleges defaulted on their student loans within five years. That's pretty darn near half. And that number does not include the borrowers who are on economic hardship deferments or long-term repayment plans who are seeing their loan balances grow larger due to accruing interest.
The same Brookings report noted that over 70 percent of students who attended for-profit institutions were seeing their loan balances go up two years after entering repayment. In fact, among student borrowers as a whole, more than half (57%) saw their loan balances go up two years after entering the repayment phase of their loans. People in repayment whose loan balances are growing are either in default, in deferment, or in long-term repayment plans. For almost all these people, their student-loan debt is growing larger during the repayment phase, not smaller, due to accruing interest.
The government can pretend that all that accrued interest is an asset because someday millions of student loan borrowers will pay back their loans, but that is baloney. The government is not making a profit on the student-loan program, and Senator Warren and Senator Schumer either know that and are being purposely deceptive or they are fools.
Here's a second point to make about Senator Warren and Senator Schumer's CNN interview. NEITHER SENATOR MADE A SINGLE SUGGESTION ABOUT HOW TO SOLVE THE STUDENT LOAN CRISIS.
My guess is they will support a bill to lower interest rates on student loans. Senator Warren has ridden that hobby horse before.
But neither senator said anything about the government's practice of garnishing elderly people's Social Security checks. Neither said anything about the insanity of putting millions of borrowers into long-term student-loan repayment plans that will result in massive amounts of student-loan debt being forgiven. Neither said anything about reforming the bankruptcy process for distressed student-loan debtors.
Why? Because Senator Schumer is a lackey of the banking industry, and Senator Warren is a lackey of the higher education industry.
The fact that these idiots stepped forward to talk about the student loan crisis on CNN without saying anything at all is disgraceful. In fact it is frightening.