The Obama administration and Congress are not helping students, Sen. Elizabeth Warren (D-Mass.) charged Wednesday, reaping record profits off the federal student loan program that a regulator said has finally surpassed $1 trillion in overall debt.
The federal government is due to book $51 billion in profit this year off new and existing federal student loans, according to estimates by the nonpartisan Congressional Budget Office. The record amount brings the government’s profit haul to nearly $120 billion over the past five years, according to CBO forecasts and Department of Education budget documents. The CBO estimates that the government will generate $184 billion in profit for new loans made this fiscal year through 2023.
“Instead of helping our students, the government is making a profit on student loans,” Warren said of the profit figures during a conference filled with young people. “That is wrong. It is morally wrong. That is obscene.”
“The government should not be making profits off the backs of our students," she said. "Period.”
Shortly after mentioning the $51 billion figure, Warren encouraged the audience of college students and young political activists to express their disapproval.
“We can hear some booing at this point,” she said, eliciting a round of boos presumably meant for the federal government. “There we go,” she added.
Warren’s comments come as an increasing number of lawmakers and regulators are challenging the Obama administration and the Education Department over policies that have led to growing student debt loads and record relative interest rates for borrowers. Some lawmakers, such as Sens. Sherrod Brown (D-Ohio) and Kirsten Gillibrand (D-N.Y.), have proposed legislation that would ease debt burdens and high borrowing costs by facilitating refinancings into cheaper loans.
Last month, Bill Dudley, president of the Federal Reserve Bank of New York, crushed hopes that the Fed may step in to aid existing borrowers. “I think this is really out of the Fed’s purview,” Dudley said in response to a question about a potential refinancing program led by the Fed.
Policies to jumpstart refinancings or loan modifications for distressed borrowers are becoming more necessary as stagnant wages, high unemployment, rising tuition costs and ever-increasing debt loads risk holding back the economic recovery, regulators and policymakers at a variety of financial agencies including the Consumer Financial Protection Bureau and Federal Reserve have suggested.
The federal government now backs more than $1 trillion in outstanding student loans, Rohit Chopra, the CFPB student loan ombudsman, said Wednesday. The trillion-dollar threshold was passed sometime between March and April, the agency estimates.
Total outstanding student loan debt tops $1.2 trillion, Chopra said. Last year, when the total amount surpassed $1 trillion, Chopra suggested the market had become “too big to fail.”
His remarks, delivered at the same conference as Warren's, highlighted some policymakers’ concern with the total amount of student debt and the attendant effects on consumption and investment. The higher the debt load and monthly payments, the less money workers have to use as down payments for new homes, cars or to sock away for retirement.
"What's frustrating is that many people in Washington don't really look at it urgently," Chopra said. "Student debt is unquestionably strangling our people, and I think to say that it's not having a broader impact in some ways may be naive."
Student debt burdens are "not going to cause some immediate doomsday, but the long-term effect can be very, very real," Chopra added.
Compounding the problem of overall debt loads is the fact that the vast majority of students carrying high-rate debt are unable to refinance their loans, even though many have improved their credit after graduating with a college degree and securing a job.
Interest rates on financial products ranging from home mortgages and car loans to corporate bonds and bank loans to businesses have rarely been lower, thanks to Fed efforts to stimulate borrowing and investment in the wake of the financial crisis. While millions of borrowers with mortgages have been able to refinance, student debtors have not.
With some 40 percent of households led by young people holding student debt, Chopra warned: "If younger households are not being able to benefit from low interest rates, I think economic historians will look back and say, 'Why didn't we get this right?'"
Congress sets interest rates for federal student loans. A broad spectrum of Republican and Democratic lawmakers, and the White House, want to reform the program by tying rates to the government’s cost to borrow, but officials haven’t been able to agree on the details.
In recent weeks much of Congress has been consumed with a relatively small portion of the federal student loan program. Subsidized Stafford loans for undergraduate students, which are meant for borrowers from low- and moderate-income households, comprise roughly a quarter of all new federal student loan originations.
While interest rates on new federal student loans are set at 6.8 percent and 7.9 percent, the rate on Stafford loans was set at 3.4 percent until July 1, when they doubled to 6.8 percent. Lawmakers and the White House have been working for weeks to revert the rate back to 3.4 percent, but have been stymied by the desire to avoid adding to the federal debt.
During his remarks, Chopra appeared to be attempting to shift lawmakers’ attention to the entire student loan program.
“While there has been considerable attention by policymakers on federal student loan interest rates taken out for the 2013-2014 academic year, outstanding student loan debt owed by existing borrowers continues to swell,” Chopra said.
Sen. Jack Reed (D-R.I.) this week circulated a letter to fellow lawmakers to drum up support for his proposal that would immediately reduce interest rates for students and enable millions of former students to refinance high-rate debt.
Citing a slice of the federal student loan program that was tied to market-based interest rates between 1998 and 2006, Reed said borrowers who took out loans during that period have paid 2.41 percent interest on average over the past five years.
“Simply put, the federal government should not be profiting off the backs of students,” Reed said in his letter. “We have offered them a better deal in the past and we should offer them a better deal now.”
Like Reed, Brown and Gillibrand, Warren is among a small group of lawmakers agitating for aggressive government action.
“College graduates are getting squeezed from all sides,” Warren said. “And here’s the deal: All across America, everyone -- parents, teachers, even the federal government -- is telling young people to get a college education, telling them to take on the debt to do it, promising that it will pay off in the long run.”
“Meanwhile, the tuition keeps skyrocketing, interest rates keep rising, and students keep borrowing more and more. In fact, this country is saying, 'You need an education, but good luck in paying for it.'"
“The government has to start doing its part to make good on the college investment," Warren added. “It’s time to help former students deal with $1 trillion in existing student loan debt by helping them refinance their loans at fair and reasonable rates. We need to lower the costs for those who have already graduated.”
Warren’s attention to student loans has begun to have an impact on other parts of the industry. Earlier this week, she continued her weeks-long probe of Sallie Mae, the nation’s biggest student loan company, for its use of a federal credit facility meant to encourage home mortgage lending.
In her letter to Sallie Mae Chief Executive Jack Remondi, Warren said she was concerned about the possible negative impact the company’s expensive private student loans could be having on the overall economy, as servicing high-interest rate debt may inhibit young borrowers from saving enough to purchase their first homes.
Ashley Balcerzak contributed reporting.
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Introduces Financial Product Safety Commission
Elizabeth Warren <a href="http://www.huffingtonpost.com/2009/03/10/financial-product-safety_n_173691.html" target="_hplink">announced</a> a bill creating a Financial Product Safety Commission with House and Senate Democrats in March 2009. The body was designed to have oversight over mortgages and other financial instruments to protect consumers against predatory practices. She said if the agency had existed before the subprime collapse then "there would have been millions of families who got tangled in predatory mortgages who never would have gotten them." HuffPost's Ryan Grim <a href="http://www.huffingtonpost.com/2009/03/10/financial-product-safety_n_173691.html" target="_hplink">reported</a>: <blockquote>Without all these toxic assets on banks' balance sheets, the institutions wouldn't be on the brink of collapse and the recession would be more manageable. "Consumer financial products were the front end of the destabilization of the American economic system." Sen. Charles Schumer's cosponsorship of the bill is notable because of his proximity to Wall Street. The bill's merit, the New York Democrat said, is that it regulates the actual financial product rather than the company producing it.</blockquote>
Geithner Opposes Her Heading CFPB
Tim Geithner expressed opposition to her nomination for the Consumer Financial Protection Bureau, <a href="http://www.huffingtonpost.com/2010/07/15/tim-geithner-opposes-nomi_n_647691.html" target="_hplink">reported</a> HuffPost's Shahien Nasiripour. Geithner thought Warren's views on the big banks and Wall St. were too tough. Warren's oversight of the Treasury department as a watchdog for TARP apparently irked Geithner, agressively <a href="http://www.youtube.com/watch?v=pz7ruJw6byQ" target="_hplink">questioning him</a> during Congressional hearings: <blockquote>While her grilling of Geithner in September, over what members of Congress have called the "backdoor bailout" of Wall Street through AIG, inspired the "squirm" video, just last month Warren pressed Geithner on the administration's lackluster foreclosure-prevention plan, Making Home Affordable. Criticizing him for Treasury's failure to keep families in their homes, she questioned Treasury's commitment to homeowners.</blockquote>
Ready For A Fight
Elizabeth Warren <a href="http://www.huffingtonpost.com/2010/03/03/fight-for-the-cfpa-is-a-d_n_483707.html" target="_hplink">reiterated her desire</a> for a strong Consumer Financial Protection Agency to HuffPost's Shahien Nasiripour: <blockquote>"My first choice is a strong consumer agency," the Harvard Law professor and federal bailout watchdog said in an interview with the Huffington Post. "My second choice is no agency at all and plenty of blood and teeth left on the floor."</blockquote>
Named Interim Chief Of CFPB
In September of 2010, HuffPost's Ryan Grim <a href="http://www.huffingtonpost.com/2010/09/13/elizabeth-warren-interim-cfpb-chief-consideration_n_715457.html" target="_hplink">reported</a> that Elizabeth Warren was being considered as a candidate for interim director of the Consumer Financial Protection Bureau. Days later the announcement was <a href="http://www.huffingtonpost.com/2010/09/15/white-house-taps-warren_n_715291.html" target="_hplink">official</a>. The move allowed Warren to set up the groundwork for the agency immediately without risking a GOP filibuster of her nomination, a response that seemed certain giving the <a href="http://www.boston.com/news/nation/washington/articles/2010/09/15/opposition_mounts_for_interim_appointment/" target="_hplink">public opposition expressed</a> by some Republican senators. When it came time to put forth an appointment for a longterm CFPB chief, Warren was overlooked, partially because she was seen as unfeasible, but also, HuffPost's Shahien Nasiripour <a href="http://www.huffingtonpost.com/2011/07/18/republican-opposition-to-elizabeth-warren_n_902165.html" target="_hplink">reported</a>, because she was a divisive figure within the Obama administration: <blockquote>Ultimately, Warren wanted the job, allies said. And near-united opposition from Senate Republicans -- 44 of them signed a letter saying they'd oppose any nominee -- should have made it easier for Obama to nominate her, since the Republicans publicly said they wouldn't support anyone for the role. Instead, the Republicans made it easy for the White House to deflect questions about the administration's lack of support for Warren. Asked how she squared the administration's public statements with its private ones, Warren declined. "I really have to say, I'm just not there. I'm not in the intricacies of the political part of this, and I can't comment," Warren said Monday. "The truth is I don't know anything about it."</blockquote>
Chats With HuffPost About Bureau
In October 2010, shortly after being tasked with building the groundwork for the CFPB, Warren stopped by HuffPost to chat with Ryan Grim and Shahien Nasiripour "This is the first real agency we've built in the 21st century -- well, there's Homeland Security, but one for the people. And it means we ought to think differently," said Warren. "The government can talk to people and people can talk to the government differently than when the Consumer Product Safety Commission was built, or when the FDA was built. And if we do this right, that should change the whole dynamic of who this agency really is." HuffPost's Ryan Grim <a href="http://www.huffingtonpost.com/2010/10/07/elizabeth-warren-consumer_1_n_754026.html" target="_hplink">reported</a>: <blockquote>By gathering information, contracts and documents from homeowners and consumers, and allowing watchdog groups and individual concerned citizens access to those documents, the agency can exponentially expand the manpower it has to review the operations of banks and lenders. The goal would be to become aware of a particularly fraudulent practice before it is rampant and insulates itself in the financial services industry.</blockquote> For full video of the interview, click <a href="http://www.huffingtonpost.com/2010/10/07/elizabeth-warren-consumer_1_n_754026.html" target="_hplink">here</a>.
GOP Calls Her A Liar
In May, Warren was called to testify before a House subcommittee and defend the merits of the CFPB. Some of the questions submitted by Republican representatives appeared confused and at times aggressive, leaving Warren to correct them on some basic facts about the actual purpose of the bureau. HuffPost's Mike McCauliff <a href="http://www.huffingtonpost.com/2011/05/24/elizabeth-warren-liar-gop-facts-cfpb_n_866505.html" target="_hplink">relays</a> one particularly contentious moment: <blockquote>The subcommittee chairman, Rep. Patrick McHenry (R-N.C.), began the proceedings by suggesting Warren had lied to the committee in a previous hearing that had questioned the CFPB's role in offering advice to state attorneys general negotiating a settlement with abusive mortgage servicers. At the time, Warren said she was proud her agency had been able to help, at the request of the treasury secretary. But McHenry brought up the memo again, suggesting it showed that she hid a larger role in the negotiations from Congress. "This is our job, and we're trying to do our job, to be helpful to other agencies, and to help those agencies to hold those who break the law accountable," Warren said, repeating that she was proud of the work.</blockquote>
Announces Senate Run
Elizabeth Warren <a href="http://www.huffingtonpost.com/2011/09/13/elizabeth-warren-senate-massachusetts_n_960510.html" target="_hplink">announced</a> on September 14, 2011 that she was running for the United States Senate seat currently held by Scott Brown (R-Mass.) "After listening to people all across our state who know that we can do better, folks who are frustrated like I am that Washington just doesn't get it, I'm running for the Senate so I can fight every day for Massachusetts families," Warren <a href="http://www.huffingtonpost.com/elizabeth-warren/senate-announcement_b_961624.html" target="_hplink">wrote on The Huffington Post</a>.
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