This week Senate Democrats will begin turning their attention to the 40 million Americans whose lives are being hampered by student loan debt. The goal is passage of a bill with a provision that will allow these Americans to refinance their loans at lower rates.
Not surprisingly, Sen. Elizabeth Warren, the face of the new populist movement, is leading the charge.
Last month she introduced the Bank on Students Emergency Loan Refinancing Act, which would allow borrowers with existing student loan debt, at interest rates of about 7 percent or more, to refinance at the same rate current undergraduates receive, which is currently 3.86 percent. Legislation with language similar to the Warren bill is expected to be put to a vote next week.
Homeowners can refinance a mortgage at under 4 percent. Car loans are available for under 3 percent. Yet college graduates are paying interest rates of nearly 7 percent or higher on existing undergraduate loans, and are unable to refinance.
Outstanding student loan debt now averages $29,400 per graduate. A recent analysis by the Congressional Research Service found that refinancing would save the average graduate $4,000 over the life of the loans.
Warren’s bill is a key part of the Senate Democrats' “Fair Shot” agenda, which Democratic leaders are using to highlight how out of touch the Republican Party is with the needs of working Americans. Warren’s bill as introduced would not have added a single dime to the national deficit, because its cost would be financed by enacting the “Buffet rule,” which would ensure that Americans earning more than $1 million annually are paying taxes at a rate at least as high as middle-income workers.
Unfortunately, this is the section of the legislation that is most likely to be removed, as some Democrats bow to objections from wealthy donors. Even after that, a watered-down bill has little chance of getting past a Republican filibuster and clearing the Senate. That’s even though most Americans fully support her original one, according to polls highlighted on the Populist Majority website:
71 percent believe Congress should pass the “Buffet rule.”
91 percent agree that interest rates on student loans should not be higher than on regular consumer loans.
68 percent want to eliminate the [carried interest] loophole that allows Wall Street hedge fund managers to pay a lower tax rate than middle-class tax payers.
69 percent believe that improving the educational system should be a top priority for the president and Congress in 2014.
86 percent believe that student loan debt is creating problems for America and making it harder for young people to get ahead.
Millennials overwhelmingly support such proposals:
87 percent of millennials support (54% strongly) lowering interest rates on student loan debt.
79 percent of millennials want the government to be more involved in making college affordable.
69 percent of millennials favor enacting the “Buffet Rule.”
A major impediment holding back millennials from entering the middle class, and Democrats from turning them out to vote, is student loan debt. Congress’ inaction on college affordability and other issues young adults care about has led many to distance themselves from the political process altogether, with only 23 percent certain to vote this November. If millennials see Democrats fighting for them on the student loan issue, that could well encourage some of them to head to the polls.
This is not just an issue affecting young adults, either. The nearly $1.3 trillion in outstanding student loan debt is dragging down our economy, exacerbating inequality and stunting our recovery. There are even seniors who are having their Social Security checks garnished to pay back their loans or loans they co-signed for a child or grandchild.
Big banks aren’t the only ones making money off the backs of students. So is the federal government. In April the Congressional Budget Office found that interest from the federal student loan program will bring in $16.2 billion in additional revenues. That adds up to $127 billion over the next 10 years. This should not be, especially when big banks get federal loans at the rock bottom interest rate of 0.75 percent.
Refinancing, even at a high rate of 3.86 percent, would put hundreds and even thousands of dollars back into the pockets of individuals who need it the most as wages are stagnating and our economy is contracting. Americans deserve their fair share and Warren’s bill helps to get a little piece of that back.