In her quest to unseat Senator Mitch McConnell in Kentucky, Alison Grimes has made student loan debt a top issue. Unfortunately — as with her apparent role model on this issue, Elizabeth Warren — Ms. Grimes cannot seem to call for more loan subsidies without deceptive rhetoric and false equivalence.
Here is what she wrote in an op-ed last week for Louisville’s Courier-Journal:
In the Senate, I will support legislation proposed by Sen. Elizabeth Warren to offer our students the same great deal on government loans that are given to big Wall Street banks. That would mean allowing new student borrowers for one year to obtain a federally subsidized Stafford loan at 0.75 percent, as opposed to the current student loan rate of 4.66 percent. [emphasis added]
The reference to “big Wall Street banks” suggests she is just standing up for the little guy, trying to level the playing field. But it is nonsensical to compare interest rates on completely different assets in completely different markets. It’s like demanding that the interest rate on your car loan be the same as the rate on your home mortgage. And the comparison is actually even less apt than that. New America’s Jason Delisle explained why over a year ago:
The interest rate at which the “government” lends to banks is part of an emergency loan program that the Federal Reserve uses to prevent runs on banks. The 0.75 percent rate is actually a penalty rate, about three times higher than what banks charge each other in the market. Banks rarely use it, and lose money when they do. Lastly, the Federal Reserve is not part of the government, nor is it controlled by it; it is an independent entity. Therefore, the “government” does not lend to banks at 0.75 percent.
The desire to increase federal student-loan subsidies is not one that I share, but it’s an understandable sentiment. Proponents should stop resorting to deception when arguing for what should be a very straightforward proposal.