In an impassioned speech on the Senate floor yesterday morning, Massachusetts Senator Elizabeth Warren urged her colleagues to act swiftly on her proposed “Bank on Students Emergency Loan Refinancing Act.” The legislation would allow students and parents with student loan debt to refinance their loans at lower rates. The bill has 23 co-sponsors, all of whom are Democrats.
Saying “Make no mistake, this is an emergency,” Warren pointed to warnings from the Federal Reserve, the Consumer Financial Protection Bureau and the Treasury that the $1.2 trillion dollars in outstanding student loan debt threatens the security of young adults and the nation’s economy. The increasing cost of a college education has forced young people to borrow at unprecedented levels. The burden of these loans prevents graduates from buying homes, cars, and making other purchases that move the economy forward. Under the weight of student loan debt, young people are unable to start small business or begin saving for retirement.
"Allowing students to refinance their loans would put money back in the pockets of people who invested in their education. These students didn't go to the mall and run up charges on a credit card. They worked hard and learned new skills that will benefit this country and help us build a stronger middle class and a stronger America." — Senator Elizabeth Warren
The proposed legislation would allow borrowers to refinance all federal student loans, and refinance private student loans, at rates currently set for new student loans — 3.86 percent for undergraduate, 5.41 for graduate, and 6.41 for Parent Plus loans. Warren believes these rates are still too high, and the student loan program will continue to generate profits for the federal government, but she sees this as a starting point. Because Republicans agreed to these new, lower rates, she believes they will join in support of the legislation to extend these rates to loans currently in repayment.
Warren says this bill will not add to the federal budget deficit. To make up for the loss of revenue, the legislation calls for adoption of the “Buffet Rule.” This rule closes some tax loopholes for wealthier Americans. Revenues generated by these tax code changes would go towards lowering interest rates on federal student loans. According to Warren, lowered interest rates would save borrowers, who are now paying as much as 9 percent on their loans, hundreds, maybe even thousands, of dollars each year.