Brookings: Elizabeth Warren student loan proposal “embarrassingly bad” and “a cheap political gimmick”
Hoorahs and adulation have been heaped on Elizabeth Warren for proposing to reduce the student loan rate to 0.75%, the rate charged by the Federal Reserve for very short term loans to banks.
While the left-blogosphere, progressive movement, and low-information political consumers have been cheering, we repeatedly have exposed that proposal as economic folly and political demagoguery:
- Elizabeth Warren finds way to inflate Higher Ed bubble even more
- More on the bad economics of Elizabeth Warren’s student loan proposal
In our posts we have cited many economic commentators who agree, but I just found out (h/t @RubySlipperBlog) that two authors at the liberal Brookings Institution share this view, Policymakers Get Serious About Student Loan Interest Rates (emphasis added):
At about this time last year, we saw President Obama and Republican challenger Mitt Romney engage in a pandering contest on student loan interest rates. Cheap political theater produced a shortsighted political solution—a one-year extension of the 3.4% interest rate on subsidized federal student loans….
This time around, the Obama administration and several members of Congress have produced serious proposals …
4) Sen. Warren proposal: one-year fix in which the rate on subsidized loans is set at the rate the Federal Reserve changes to banks (currently 0.75%).
Sen. Warren’s proposal should be quickly dismissed as a cheap political gimmick. It proposes only a one-year change to the rate on one kind of federal student loan, confuses market interest rates on long-term loans (such as the 10-year Treasury rate) with the Federal Reserve’s Discount Window (used to make short-term loans to banks), and does not reflect the administrative costs and default risk that increase the costs of the federal student loan program.
Setting aside this one embarrassingly bad proposal, the remaining proposals raise a set of questions that need to be answered in order to select the ideal policy….
These are exactly the points we have made.
I don’t expect this to diminish the praise for Warren from her base and compliant media, but it does confirm — once again — that Legal Insurrection has been ahead of the curve and correct on Elizabeth Warren’s politics.
The student loan crisis deserves serious solution, not embarrassingly bad cheap political gimmicks.
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