As you may know, Legal Insurrection has covered Elizabeth Warren’s ridiculous and ineffective ideas for dealing with student loans.

In a new post at the College Conservative, writer Christine Rousselle takes Warren to task.

Elizabeth Warren’s Game of Loans

Sen. Elizabeth Warren (D-MA) is definitely not an economist. Her recent student loan interest rate bill makes that clear.

Sen. Warren’s bill would lower the interest rate on Stafford federal student loans to .75%, the same rate the Federal Reserve gives to big banks. The argument given is, “If the banks can get it, so can the students.”

Look. We have student loans. They suck. We don’t look forward to paying them back. On paper, an interest rate of .75% sounds great. Sign us up! The economic implications, however, of an interest rate this low would be disastrous, and could in fact make college less affordable and attainable for needy students.

There are at least two forces that govern the world: gravity and prices. Interest rates (the price of loanable funds) contain information on how we should allocate our resources most efficiently. Creating artificially low rates (like the one Warren is proposing) will distort this information.

Consider a privatized economy with an excessive amount of college graduates. This flood of college graduates will, assuming everything else is equal, drive wages down for college graduates. The supply of college graduates will exceed demand, driving down their “price” (wage). This is not good for the recent college graduate, who needs to make money to pay back the loans they took out to receive their education.

Furthermore, because so many people have been taking out loans to go to college, loan rates will be excessively high. The high loan rates dissuade high school graduates from attending college. The interest rate effectively communicates the message that there are too many college graduates driving down wages in the market and, perhaps, college is not the best investment for the high school graduate.