The Bank on Students Emergency Loan Refinancing Act, introduced in the Senate last month by Senator Elizabeth Warren, would increase federal revenues by $72.5 billion over the years 2015-2024, according to the CBO cost estimate released yesterday. The bill would allow borrowers to refinance outstanding federal student loans at current, lower rates. Holders of private student loans would also be allowed to refinance with a federal loan. The student loan program would collect $51 billion less in interest payments, leaving a net deficit reduction of approximately $22 billion over the next 10 years.
Warren introduced the Bank on Students Emergency Loan Refinancing Act over concerns that the burden of outstanding student loan debt is preventing new graduates from striking out on their own, buying cars, homes and other consumer goods, creating a drag on the economy. The bill would allow students to refinance at the current rates of 3.86 percent for undergraduate loans and 5.41 percent for graduate loans. Refinancing of Parent Plus loans to the current 6.41 percent is also included in the bill. Currently, outstanding student loans carry interest rates as high as 9 percent.
“This is an emergency. Student loan debt is crushing our young people and weighing down our economy.” — Massachusetts Senator Elizabeth Warren
Warrens says she believes it is wrong for the government to make a profit from the student loan program, and she would prefer to lower rates even further to eliminate that profit. She settled on current rates because her Republican colleagues have already agreed on these rates. The act’s 23 co-sponsors are all Democrats.
To pay for the Refinancing Act, the bill adopts the “Buffet Rule,” which closes tax loopholes for higher-income taxpayers. Called “The Fair Share Tax”, it would affect taxpayers with adjusted gross incomes between one and two million dollars. Taxpayers in this bracket would be required to pay the difference between their total income tax bill and 30 percent of their adjusted gross income.
This new tax may prove to be a sticking point with Republican members of Congress. Most have signed the Taxpayers Protection Pledge, vowing to oppose all efforts to increase tax rates. The Pledge, offered to candidates for statewide office, is promoted by Grover Norquist, President of Americans for Tax Reform.