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Banks borrow at 0.75%, get 3.4% for student loans, rising to 6.8%

Student Debt

Student loan rates rise to 6.8% on July 1 on money the big banks borrow from the government at 0.75% and which are riskless loans to them since the government guarantees the loans. This is simply a license to print money made even more sleazy by 1) the interest rates rising for no apparent reason and 2) government making $50 billion this year from the loans.

How cozy is that? The government and big banks walking together hand in hand.

Sen. Warren has introduced legislation to cut Stafford student loan rates for one year to what the banks pay in interest. Much as I applaud her activism, this bill seems almost engineered to fail. I say, give the banks 0.50% over their rate. That might get substantially more votes.

PS The number of defaulted student loans is increasing sharply so that $50 billion projection may prove to be illusory.

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