With outstanding student loan debt now at more than $1.2 trillion, a U.S. senator is pushing a bill that would allow students to refinance their outstanding student loans to lower interest rates.
The Bank on Students Emergency Loan Refinancing Act, proposed by Sen. Elizabeth Warren D-Mass., would allow holders of Federal Student Loans to refinance with the federal government at significantly lower rates.
“Exploding student loan debt is crushing young people and dragging down our economy,” Warren said in a statement.
Rates were 7% or higher until the Bipartisan Student Loan Certainty Act was passed last summer, which lowered interest to 3.86% on Direct unsubsidized and subsidized loans.
“Allowing students to refinance their loans would put money back in the pockets of people who invested in their education,” said Warren, who has the support of 32 co-sponsoring senators. One is independent and the others are all Democrats.
The government is projected to make a profit of $66 billion on loans issued from 2007-2012 according to a report by the U.S. Government Accountability Office.
With mid-term elections on the horizon, the Democrats seem poised to make higher education an issue at the forefront of the election.
Warren, who is up for election, has made higher education the main issue of her campaign. The front of the website features college students. She also appeared on Comedy Central’s Colbert Report Monday to push education.
“I cannot think of a single issue that draws such a spontaneous emotional response from every audience I’ve spoken too,” said Senate Assistant Majority Leader Dick Durbin, D-Ill, a co-sponsor of the bill.
The proposed bill would allow lower interest rates for both federal and private loans. Borrowers in good standing could possibly lower their interest to the rate set in 2013 starting at 3.86%.
The bill was proposed on May 6 and is in the Senate Finance Committee. An identical bill is in committee in the House of Representatives.
Sen. John Coryn, R-Texas, has said he is still reviewing the legislation and told the National Journalhe is not sure yet if it would pass if it would pass on the senate floor.
The bill would be funded through the “Buffett Tax,” which would tax people making more than $1 million. The idea of taxing the wealthy is something many Republicans strongly oppose.
Rep. Paul Ryan, R-Wis., told Fox News in 2011 the Buffett Tax would stall growth.
“If you tax something more, you get less of it. If you tax job creators more, you get less job creation. If you tax their investment more, you get less investment,” Ryan said.
Coryn said he would expect Sen. Lamar Alexander, R-Tenn., to propose the Republican’s bill to reduce the cost of higher education.
“We’re happy to engage on education and on costs and affordability, but I don’t think this is the right approach,” Coryn said.
The bill, if passed, would primarily affect the Millennial generation. Kevin Fee, a 2009 graduate of Austin Peay State University in Cookeville, Tenn., has borrowed close to $22,000 in federal student loans.
“It’s preventing me to do a lot,” Fee says. “There is a lot of things that you want to do, but my wife and I have made an agreement. We cannot start about thinking about a bigger house or children until we get the loan debt down to about $15,000.”
Fee says the interest rate for his condo’s mortgage is half of what his student loan interest is. He says Warren’s play would allow him to make more progress on his loan payments.
“It would allow for me to pay more of the principal,” Fee says.
Bob Gavlak, a wealth adviser with Strategic Wealth Partners in Independence, Ohio, says there are many reasons for students to refinance their loans.
“Make sure it is the best move in the long term,” Gavlak says. “You want to look at all of the other options as well.”
Aurora University junior Ana Botezatu will be the first person in her family to earn her bachelor’s degree.
“I think it is important that interest rates get lower,” Botezatu says. “My family had to sacrifice a lot to let me to go to college.”
Botezatu says she has taken out $15,000 in federal loans and says she supports Warren’s bill.
“It would provide more opportunities for people to handle their finances much better,” she says. “It is more accessible and realistic to pay off.”
If the bill makes it out of committee, it will then be put to a vote by the full Senate. An identical bill must be passed in the House of Representatives. The bills will then go back to committee to compromise on the differences before going to the president to sign.