Thanks to Congressional inaction, the interest on federally subsidized student loans doubled today, from 3.4% to 6.8%. This is good news for the largest student loan lender in the country, Sallie Mae, who spent $1.23 million to lobby Congress in the first quarter of 2013 alone.
Some Democrats want to extend the rate of 3.4%, while Republicans want to cap it at 8.25%. Massachusetts Senator Elizabeth Warren [PDF] wants to make the rate 0.75%, which is the same rate that the federal reserve gives to banks—which is absurd because banks are actually people, you know?
Sallie Mae (who wears a white apron with little blue ducks on it while she slits the jugular vein of your bank account) made $2.5 billion off student loan interest last year, and stands to make more if high federal interest rates drive more borrowers into their arms. Despite its profits, Sallie Mae doesn't like high interest rates either: it recently received a line of credit worth $8.5 billion with an interest rate of 0.23% from a federal bank.
"If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class," Warren said when she announced her legislation.
The "good" news is that most students don't take out loans until the fall, so there's time for Congress to lower the interest rates (the higher rates don't affect the former/current students who still owe $1 trillion in loans—so go ahead, splurge on that $5 Footlong tonight).
Or, you know, Congress could keep them really high: the federal government is expected to net $34 billion from student loans this year.
