At a time when charges for borrowing money have hit nearly historic lows, students and those currently repaying federal student loans have been locked into older, higher rates.
U.S. Sen. Sherrod Brown last week filed a bill looking to remedy this by allowing student loan debtors to refinance the way homeowners, businesses and local governments do.
But Brown, co-sponsor Massachusetts Sen. Elizabeth Warren and fellow Democrats are seeing pushback for using something called the Fair Share Tax to fund the bill. The tax mandates a minimum rate of 30 percent on those who bring in a million dollars or more a year.
Offering students loans without a refinancing option is a profitable business — the government is set to take in $66 billion on interest alone from loans issued between 2007-2013, according to the Government Accountability Office. Eliminating that money would have big budget implications. That’s where the Fair Share Tax comes in.
The Banking on Students Emergency Loan Refinancing Act would allow those with loans issued before Aug. 9 last year to refinance at the rates passed in 2013 — 3.8 percent for undergraduate loans.
“Every dollar a current borrower pays in interest is a dollar he or she can’t spend on a car, on a mortgage, or on starting a small business,” Brown said in an email sent out on June 5 requesting signatures to support the bill.
So far, 36 senators have signed it.
Last year, Congress lowered the rate of new loans but left existing rates the same.
Those higher rates are drowning graduates,, Warren said on the Senate floor last month.
“Make no mistake, this is an emergency,” she said. “Student loan debt is exploding and it threatens the stability of young people and the future of our economy.”
The Congressional Budget Office found that lowering the rates of outstanding loans would increase spending by $51 billion, but with the new tax thrown in, the bill would also increase revenue by $72 billion between 2015-2019.
The CBO said deficits could be reduced in the next 10 years by about $22 billion.
Congressional Republicans are sure to oppose the tax increase.
In the meantime, student loan debt totals $1.2 trillion, greater than all outstanding credit card debt.