All In   |  May 09, 2013

Why do students pay more to borrow from the gov’t than banks?

Banks pay much lower interest rates to borrow money from the federal government than students do. Chris Hayes talks to Senator Elizabeth Warren about her new bill to end this disparity.

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This content comes from Closed Captioning that was broadcast along with this program.

>>> we put this graphic up on our facebook page. it got more likes than anything we have ever posted for good reason. it comes from senator elizabeth warren and compares two simple things , how much banks have to pay when they borrow money from the federal government and how much students have to pay. for the last seven years, banks have got an sweet deal on interest rates and students a raw one. bank rates have been slashed to almost nothing and while student rates have lowered only slightly and set to double from 3.4% to 6.8% in less than a month and banks paying less than 1%. while they've been able to borrow near zero interest rates , student debt has exploded. almost a trillion in student debt in the united states second only to mortgage debt. in 2008 the average student graduated with $26,000 in loan debt. enter senator elizabeth warn who says what's good for banks is good for students. this week she introduced her first bill as a senator. the concept is very simple. students should be able to borrow money from the forget the same rate banks do. the senator joined me earlier today from the capitol.

>> i'm curious where the idea for this piece of legislation, impressive in its simplicity, where did it come from?

>> come on, i'm working on what happens with the big banks all the time m. that's out there. and the number of ways in which this country is subsidizing those big banks . i also work on middle class economic issues. one of the things that's really slamming the middle class is student loan debt, making it hard hard hard for young people to get an education and start their lives. you look down, see the intersection of those two and say, look, as a country, if we're going to make this kind of investment in our big banks , lend them money at a little tiny interest rate , can't we do the same thing for our young people trying to get an education? that's all i'm looking for.

>> here's the devil's advocate response i thought of, right. are you beginning a slippery slope , setting a precedent, if you open up the fed discount window to students, we just did a story last night about a municipality in michigan saginaw shutting down the school because the credit line from the state has been cut off, i thought they should be getting the fed discount window , too, you start thinking of all the people that should be borrowing from the fed discount window , is there something scary about opening up that pandora's box.

>> i'd just reverse the question if you let me. that is, why is it we've been supporting the big financial institutions with these very low interest rates for years and years now? so they can borrow money at very low interest and they can go out and lend it to american families or go out and buy things with it and they do all that and make a big profit on the spread. so the way i see this is this is really about our examining a fundamental policy. as a country, whenever we do something like this fed rate , where you can come in and borrow at a very low rate, in effect the american taxpayer has now said we're going to make an investment in that group. i just want to know why it should only be big financial institutions . the group i'm looking at, students, they're trying to get a loan and let me be clear, student loan debt, the fed itself said, in march, is a real drain on the economy and our economic recovery. the reason we use for subsidizing the banks in this way, it seems to me we ought to make that same kind of investment in our students.

>> you mentioned the fed and they have been issuing both local feds and main fed have been issue iing reports about the levels of student debt and how much that overhang is hurting recovery. have you had a conversation with ben bernanke about this piece of legislation? my sense is the fed being what it is, they are not going to be happy with this piece of legislation?

>> i have not yet spoken with chairman bernanke about it. i would be delight to talk with him about it. it's the feds own reports, as you rightly point out, that show the risks that student loan debt poses to us. remember, it poses a risk not only to the family that's trying to manage the debt, the student that's trying to manage the debt but it poses a risk to the entire economy. this is a way to back the pressure off a little. let's remember, if congress does nothing, come july 1st , the interest rate on new student loans is going to double, and that means it will be nine times higher than the amount charged to the big financial institutions . that's bad economically and, frankly, i think it's bad morally. i don't think it's the right place for us to be. this bill says, hey, same deal for our students and for the banks .

>> let me ask you one more question about the gap between funding that increasingly increasingly -- what you're talking about are direct student loans , loans the government makes directly to students. that is covering a smaller and smaller percentage of students' tuition as the gaps do up and the gap in between is increasingly made by a company called sallie mae itself benefitting from all kinds of subsidies from the federal government . is that something we should be looking into? there's a poll showing how universities themselves with stock in their endowments are benefitting off the back that sallie mae is making record profits.

>> i don't want to kid anybody. what i've got here is a one year fix on keeping the student interest rates from doubling. i want to bring them down to the rate that the big banks pay. i want to use that year to get permanent solutions in place. the question about how our young people are going to pay for college, it's a big question, hard question, complicated question, a lot of moving parts but a question we have to work on. it is critical to our country that we make investments in our young people so they get a good education, so they go out there and grow this economy and strengthen america's middle class . that's what this is all about. what i've got today is just a first step trying to do that.

>> final quick question, any republicans interested in signing on board so far?

>> i started this as grassroots. i didn't ask, i started it by talking to lots of people. that's why i'm here today. i want lots of students, lots of people, the families of students, just people who think it's smart, a good idea. e-mail your senator, please, over it. we are going to gather a lot of people and see what we can get going here. this is grassroots legislation. it's legislation, keep in mind, the banks , they've got an army of lobbyists, they've got an army of lawyers. what this is about is our students. they don't have those same kind of lobbyists, we're going to build this one from grassroots up.

>> senator warren from massachusetts, thank you for your time today.

>> thank you.

>>> lowering federal student loan rates is this first step. the education system is designed to funnel money from the students and over to the biggest lend lending company in private business. it is rigged. more from the " huffington post " coming