One might also argue that lower rates would boost tuition even higher.
Exactly. This is spot on, my friend.
Unfortunately, Elizabeth Warren is clueless. What's happened since the Feds acquired a choke hold on the student loan business is kind of sad. The fed will dole out an essentially unlimited amount of monies to students so that they can pay their way through college/grad school. If you were a university which needs to bring in money to stay afloat just like any other financial institution, how would you view this?
"Let's see here, our customers will always have a way to pay for our product, no matter what we set the price at? Let's raise prices at a rate that greatly exceeds the rate of inflation, and we'll continue to get the cash forked over to us site on seen, no questions asked."
Now what happens when you make that money even cheaper by slashing interest rates? "Well, it just became a lot easier for the consumer to pay it back, so let's raise tuition even more!"
The writing is on the wall. The higher education bubble is getting massive, yet the big players involved still refute it because they want the paper bag to stay over our heads as long as possible. It's a win win system they have going on at the students' expense. The universities get a ton of money for all their new fancy buildings and competitive raises for "prestigious faculty" that they need to retain. Then on the back end, the government takes a pretty penny in interest payments.
Some argue "but we need the government to lend this money, otherwise only the rich will go to college!"
We don't need the government for this. The government has caused more problems than they've solved over the years, and they're the reason we're in this mess to begin with. Also, ever notice that the private banks have a limit on how much you can withdraw for student loans? That's because no bank in their right mind would lend such crazy amounts of money to a college student or graduate student who has no assets - it's way too high risk for them.
If the fed wants to stay in the student loan business, fine, but cap the amount of money they're allowed lend to something reasonable. It would probably suck for a few years. But as soon as the universities see the once endless money pile start to dry up, and less people are enrolling because they don't have a way to pay for it, they'd have to drop rates to increase the demand for their product again. Thus, the bubble would have burst.
It's essentially the housing bubble, except we're not buying houses, we're buying pieces of paper.
