By Peter Schroeder - 05/08/13 02:32 PM EDT
Sen. Elizabeth Warren (D-Mass.) wants students to be able to borrow at the same rates as the nation's biggest banks.
Speaking on the Senate floor Wednesday, Warren said that as her first bill, she was introducing legislation that would set the interest rate on subsidized Stafford student loans at the same rate banks borrow from the Federal Reserve.
Calling the increasing amount of student debt a "quiet but growing crisis," Warren said her bill would bring some much-needed fairness to students, while highlighting the low rates banks enjoy from the federal government.
Under her legislation, the Fed for one year would provide funds to the Department of Education so it could offer the subsidized student loans at the same rate banks enjoy, which she contended would give Congress the time to strike a long-term deal on student loan rates.
The Fed uses the discount window to offer short-term loans to banks to address any liquidity shortages that might occur. The window came into heavy use during the financial crisis, as banks relied on the Fed to keep credit flowing when markets seized up.
The current rate for loans from the window is about 0.75 percent, while students are facing rates of 6.8 percent, Warren said.
"In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks — the same banks that destroyed millions of jobs and nearly broke this economy," she said. "That isn't right. And that is why I'm introducing legislation today to give students the same deal that we give to the big banks."
Rates on Stafford subsidized loans for new students are set to double on July 1 to 6.8 percent, after Congress previously agreed to lower the rate under Democratic control in 2007.
Congress agreed to extend the lower rates for one year in 2012, after President Obama made it a central issue on the campaign trail.
Some Democrats are pushing for another one-year extension of the rates, while House Republicans are preparing to consider a bill that would allow the rate to rise and fall alongside the government's borrowing rate. The House is expected to vote on such a bill sometime in May, according to a memo from House Majority Leader Eric Cantor (R-Va.).