New proposed legislation attempts to address the problem of exploding student loan debt, but the bill is unlikely to gain enough support to pass.
On May 6, 2014, Elizabeth Warren (D-Mass.), on behalf of herself and 23 other Democratic senators, introduced before the U.S. Senate a bill entitled “The Bank on Students Emergency Loan Refinancing Act” (the Act). The Act would allow eligible student loan borrowers to refinance their loans at low rates offered to new borrowers. The Act is meant to address both the dramatic volume of student loan debt as well as the inequities inherent where student borrowers pay drastically different interest loan rates based on when the loan originated.
Last year, as federal student loan interest rates escalated, Congress voted to lower rates for new borrowers, but failed to address those existing borrowers already locked into higher interest rates. Senator Warren has called the current level of student loan debt, totaling over $1.2 trillion, a “crisis that threatens our economy.” The Consumer Financial Protection Bureau expressed concern about this problem: “While many in Washington are focused on what loans look like for future borrowers, there may be a domino effect on the broader economy if we ignore borrowers currently stuck with high student loan payments.” Without legislative intervention, student borrowers will be divided, in effect, into two classes: those whose loans originated under the current (lower) rate, and those whose loans originated under a higher rate.
Although the Act would be administered by the Department of Education, the Act would be funded by the proceeds from implementation of the Buffett Rule, raising taxes on the wealthy. There is broad consensus among legislative watchers, however, that Warren’s bill will never become law.