Student Loan Debt : The players and its role in November

Simon Silverberg

In the past decade, student loan debt has tripled, and by 2013 it had surpassed credit card and auto debt. Now, nearly seven out of ten graduates have at least some student debt with the total debt coming out to 1.2 trillion dollars. The student debt problem is becoming a more frequently talked about issue in both Democrat and Republican campaigns; however, it is Senator Elizabeth Warren, who has denied many calls by liberals to seek the White House, that has most publicly fought for legislation on the issue.

In 2014, Senate Republicans twice blocked Warren’s bill, the Bank on Students Emergency Loan Refinancing Act, from leaving committee. This bill would allow students to refinance their loans to lower interest rates and would be paid for be insuring an effective tax rate of 30% on those who earn between one and two millions dollars annually. Republicans blocked the bill since it included a tax increase, and they swiftly accused Democrats of attempting to gain political points before the 2014 midterms. Again in 2015, Senate Republicans, specifically Mike Enzi of Wyoming blocked Warren’s bill from being attached to the budget amendment saying that something needs to be done about student loan debt, but “you can’t have policy on a budget bill.”

While Warren has not been able to best Senate opposition to student loan debt reform, her willingness to publicize the issue is leading to some changes. The Federal Home Loan Bank of Des Moines, a government backed bank designed to support homeownership, had been lending money to a student loan company, Navient for remarkably low rates. “From 2010 to 2012, the Des Moines bank lent” the company money with rates “that on average were no higher than 0.35 percent.” The bank went on to give students loans at rates approaching 40 times the rate it paid to borrow from the Des Moines Bank. Navient is an offshoot of the Student Loan Marketing association, commonly known as Sallie Mae.  In June of 2013, Warren made public her concern that a taxpayer-sponsored bank was cheaply lending money to Sallie Mae, thus profiting on the taxpayers’ dime. In addition to profit-making system the Des Moines Bank and Sallie Mae had set up, Warren found issue in that “every dollar that” the bank uses “for another purpose is a dollar that is not available to finance the purchase of homes.”

In August of 2015, the Consumer Financial Protection Bureau (CFPB) informed Navient that it had been considering suing the company in court since enough evidence to indict Navient on consumer protection laws had surfaced. Market uneasiness after the investigation by the CFPB in addition to Senator Warren’s public shaming and a Standard & Poor’s downgrade of Navient’s credit rating to BB- has sent Navient’s stock prices into free fall. By the end of 2015, the stock decreased nearly 50%, and the relationship between the Des Moines Bank and Navient has ended.

As the 2016 elections draw increasingly near, many presidential candidates have incorporated the issue into their online platforms. Hillary Clinton’s website goes in depth describing her New College Compact that will allow students to refinance their loans at lower rates and enroll in a program that ensures students would never have to pay more than 10% of their income. The Compact is expected to cost 350 billion dollars over ten years and is to be paid for via limiting tax breaks on high-income earners. On Senator Sanders’ website, he also plans to allow Americans to refinance their loans at today’s interest rates and vows to triple the size of work-study programs that students can participate in. His plan is to pay for these expenditures (among other measures, including free public college tuition) with a tax on Wall Street speculation.

In 2014, Marco Rubio co-sponsored a bill with Democrat Mark Warner titled the Dynamic Student Loan Repayment Act that would limit loan repayment to 10% of borrowers’ income. However, this bill never made it to a vote. On Senator Rubio’s website, there are no specifics regarding other student loan debt initiatives but rather a plan called the “Student Right to Know Before You Go Act” to inform students on how much they can expect to make out of college compared to how much they should expect to borrow. During an interview in July 2015, Donald Trump stated that student loans is “probably one of the only things the government shouldn’t make money off.”

Considering the role of a Des Moines Bank in the latest development of the student loan issue and the fact that we are less than 25 days until the Iowa caucus, perhaps the issue of student loan debt will become a more centralized topic in the campaign world. As millions of Americans feel stifled in this student loan crisis and the government continues to profit off of their payments, one can expect GOP and Democratic candidates for executive and legislative office to begin addressing the issue.

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