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S. 1845: If It’s Good Enough For the Banks, It’s Good Enough For Students Act

Should federal student loans’ interest rates be halved to match those of banks receiving government loans?


Federal student loan interest rates are currently 4.53% for undergraduates and 6.08% for graduate students. And many borrowers with private loans are paying even higher rates than that.

However, big banks receiving government loans from the Federal Reserve’s Discount Window pay only a 3% interest rate.

What the bill does

The If It’s Good Enough for the Banks, It’s Good Enough for Students Actwould allow those with federal student loans to refinance at the same 3% rate that banks can receive from the Federal Reserve.

The rate would be fixed, and all other terms and conditions related to the original loan would remain the same.

It was introduced in the Senate on June 13 as bill number S. 1845, by Sen. Jeff Merkley (D-OR).

What supporters say

Supporters argue the bill would help level the playing field behind hard-working Americans trying to gain their education and big banks, who are arguably treated more favorably by the government.

“As the first in my family to graduate from college, I experienced firsthand the power of education to change your life,” Sen. Merkley said in a press release. “I still live in the blue collar community I grew up in, but today, too many parents in my neighborhood are afraid to send their kids to college because they fear they will end up with an unaffordable millstone of debt around their neck.”

“Higher education should be an affordable, accessible pathway to the middle class, not a privilege reserved for the wealthy and well-connected,” Sen. Merkley continued. “Don’t our students deserve the same low interest rates that the big banks get?”

What opponents say

Opponents counter that lowering interest rates is the wrong policy tool to fix the real problems of education costs and high default rates.

“Can lower interest rates reduce loan defaults?” University of Michigan Professor of Public Policy and Education Susan M. Dynarski writes for the Brookings Institution. “The effect is quite small, however, since loan payments are largely determined by principal, rather than interest.”

“The ten-year payment on a $20,000 loan is $204 when the interest rate is 4.29%, and drops just twenty dollars (to $184) if the interest rate is cut to 2%,” Dynarski calculates. “For a seriously distressed borrower, cutting the payment twenty dollars is unlikely to make much of a difference.”

“If we want to increase college-going by lowering its price, evidence shows that grants and lower tuition are the right policy tools,” Dynarski concludes. “Cutting interest rates on student loans won’t get more students into college, and siphons off revenue from the grants than can do this important job.”

Odds of passage

The bill has attracted two Senate cosponsors, both Democrats: Sens. Cory Booker (D-NJ) and Kirsten Gillibrand (D-NY). Although that’s not a high number of cosponsors, both of them are high-profile senators running for president.

It awaits a potential vote in the Senate Health, Education, Labor, and Pensions Committee. Passage is unlikely in the Democratic-controlled chamber, but the bill could serve as a template for a potential Democratic-controlled Senate and/or Education Department in 2021.

Then again, federal student loan interest rates — which are usually adjusted annually — actually went down this year for the first time in three years. So the problem might possibly be ameliorating on its own, at least to some extent.

Last updated Jul 11, 2019. View all GovTrack summaries.

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