May 22, 2013

USA Today: Nobel winner: Cut student loan rates

A proposal by Sen. Elizabeth Warren, D-Mass., to reduce interest rates on student loans has one big economic backer: Nobel Prize laureate Joseph Stiglitz.

Warren's proposal would tie the interest rate on Stafford student loans to the Federal Reserve's discount rate, currently, 0.75%. Government-subsidized Stafford loans have a 3.4% interest rate, and are scheduled to rise to 6.8% this summer, unless Congress decrees otherwise.

College graduation has become a big factor in whether students succeed later in life, Stiglitz says. "The life chances of a young American are more dependent on the income and education of their parents than in other industrial countries."

While the national unemployment rate was 7.5% in April, the unemployment rate for college graduates was 3.9%, according to the Bureau of Labor Statistics. High-school grads with no college have an unemployment rate of 9%.

"Students are being squeezed," says Stiglitz, who won the 2001 Nobel Prize in economics. "Incomes are down, and tuition is going up." Those who go to public colleges are getting hit the hardest, he says, because of state budget cuts.

Read the full story here.