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Democrats are enlisting their rising star, Sen. Elizabeth Warren (D-MA), to drum up attention for one of their key campaign platforms ahead of the midterm elections.
The liberal firebrand from Massachusetts, who has long been an advocate of student finance reform, has catapulted into the spotlight in the last few months after releasing A Fighting Chance, an autobiography that prompted whispers about a potential 2016 presidential bid. She has also been busy campaigning with vulnerable Democrats ahead of the November elections.
Earlier this week, Warren introduced a bill that would allow student loan borrowers to refinance their old federal loans, and some private loans, at today’s low rates. It would be paid for by imposing the Buffet Rule, which sets a minimum tax rate on millionaires. Undergraduates can currently qualify for loan at a 3.86 percentage rate.
“This is an economic emergency, and we can't ignore it any longer," Warren said in a statement.
According to the Consumer Financial Protection Bureau, the average borrower with federal student loans now carries more than $26,000 in debt, a nearly 43 percent increase from 2007.
Though Warren’s bill is largely symbolic and likely doesn’t stand a chance in the Republican-controlled House, it will serve as framework for another piece of legislation Senate Democrats are planning to vote on in early June.
The issue of college affordability will join Democrats’ so-called “Fair Shot Agenda,” which includes votes on raising the minimum wage and extending unemployment insurance.
Student loans will certainly get a lot of attention this election season, as they are an incredibly politically divisive issue impacting millions of Americans.
About 9.4 million students have obtained the low-income loans, each borrowing an average of $3,645. Students qualifying for these loans don’t have to pay interest while still attending college. About 8.8 million students are using the unsubsidized loans, and have borrowed on average $4,247, according to CollegeBoard.org. They are required to pay interest on their loans while attending school.
There are other federal program options, including Pell Grants, which are available to low-income students. About 5.4 million students use them each year.
About a quarter of student loans come from private lenders such as Sallie Mae, Wells Fargo and Discover Financial Services. These organizations typically offer fixed-rate loans for undergraduates that vary between 5.75 percent and 12.875 percent, depending on credit history, according to the CFPB.
Last summer, lawmakers battled over how to keep rates on the federal Stafford Loans from doubling to 6.8 percent. Though both parties supported tying the interest rates on the loans to 10-year Treasury notes, they disagreed on whether there should be a cap on how high the rates can climb.
While Republicans want manageable rates, they also are weary of adding to the deficit. Ultimately, Congress approved a bipartisan measure tying a fixed interest rate on federally subsidized student loans to 10-year Treasury notes.
Rates for loans taken out after July 1 of last year were set at 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 percent for those receiving PLUS loans. The rates change for new borrowers each year, but are fixed over the life of the loan. Congress also set a cap on loans - 8.35 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients, which pleased Democrats.
Still, more progressive lawmakers like Warren, wanted rates to be much lower.
She introduced a bill that would have temporarily allowed students to borrow at the same low rate of 0.75 percent interest the Federal Reserve offered banks at its discount window. “Students deserve the same break big banks get,” Warren said at the time.
Of course, the proposal makes little policy sense, since the two types of loans are hardly comparable. While banks were able to pay the debt back quickly, student loans are repaid over at least 10 years and have extremely high default rates.
Regardless, it helped rally student activists who would have benefited from the lower rates.
Last year, the Consumer Financial Protection Bureau estimated that of the more than $1.2 trillion worth of student debt, one third of the borrowers are in default or deferment.
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