Economy

Elizabeth Warren Explains Why Student Loan Debt is Such a Mess

Senator Elizabeth Warren (D-Mass.) sat down with Jon Stewart on Thursday night's "The Daily Show." The two discussed topics from her Book "A Fighting Chance": the Consumer Protection Agency and the student loan crisis. First however, Stewart stated that Warren has "a wing of the Democratic party"  -- or "Warren wing." ("Don't fight the alliteration," Stewart joked. Warren however, demurred calling it "our wing" of government.)

Diving into the gritty details, Stewart asked Warren about corruption in government. Warren's response: corporate money and lobbyists have far too much influence on all aspects of Washington. The lobbyists, Sen. Warren stated, are always present "to make sure that the tender fannies of the rich and the powerful are always carefully protected."

"The wind only blows from one direction; it only blows from the direction of those who have money," Warren explained. She then delved into the struggle to create the Consumer Protection Agency.

The next issue to tackle: student loan debt that millions of Americans are saddled with. Stewart was curious about the difference between the Congressional Budget Office's (CBO) accounting and fair value accounting. "Because apparently that makes all the difference in the world," Stewart stated. There is an ideological difference on what type of accounting to use when determining revenues of student loans.

"So we can't agree on science, policy and now math," Stewart continued.

The issue of course is that unlike other loans, student loans cannot be refinanced at a lower interest rate. And why? Well as Warren explained to another comedian earlier this week, the government has already spent the revenue generated from this interest. And this is where the different math comes in.

When using the CBO's accounting, student loans generate revenue for the U.S. government -- for example between 2007 and 2012 student loans are on target to bring in around $66 billion for the government. When using fair value accounting -- which takes in account risks for businesses -- this number shrinks. "Except, the government is not private company," Warren exclaims. "It doesn't get the same kind of risk ratio."

Overall, Warren stated that the government should not be raising revenue at the expense of students. 

"We should not say to kids, 'if your mom and dad can write a check for college you pay this much for college. But if they can't you've got to pay a much higher rate because you have to pay more on your student loans,'" Sen. Warren stated.