While some might think of warm sun and white sand beaches when the month of June rolls around, for the third year in a row student loans will be the hot topic of debate in Congress next month.
Senate Democrats, with an eye on the fall election, plan to push a student loan refinancing bill as a way to message to the middle class and young voters.
The legislation going to the Senate floor in early June, the Bank on Students Emergency Loan Refinancing Act (S. 2292), was introduced by Senator Elizabeth Warren (D-MA) and 29 other Democratic Senators. (An identical bill has also been introduced in the House as H.R. 4582.)
The bill would allow student loan borrowers to refinance Federal family education loans and Direct student loans — or any private student loan — into the current federal program under a new, market-based system enacted last summer.
The rate in effect now for undergraduates is approximately 3.86 percent and the Warren bill would let all previous borrowers refinance to that rate.
To cover the substantial cost of making this change, the bill proposes to close tax loopholes for millionaires by setting a 30 percent minimum effective tax rate –enacting the so-called Buffet Rule named for the famous investment banker who said tax law should at least require him to pay the same income tax rate as his secretary. That effectively sets up discord with Senate Republicans, who will oppose the offset based on tax increases.
Bill sponsors cite a recent GAO report estimating that the federal government will make $66 billion on older student loans issued between 2007 and 2012 if nothing is done to allow refinancing to today’s lower rates. Outstanding student loans now total more than $1.2 trillion, surpassing total credit card debt in the nation. Thirty percent of federal Direct student loans are in default, forbearance or deferment.
Bill sponsors say that allowing the refinancing will free up money that younger people can use to save for a car or a home mortgage, thus boosting the overall economy. Perhaps with the cars, students could head to the beach next June!