The student debt crisis received a setback recently when the Bank on Student Loan Fairness Act sponsored by Senator Elizabeth Warren died in the Senate. It fell four votes shy of moving on for debate.
According to the Project on Student Debt, 71% of college seniors who graduated in 2013 had an average student loan debt of $29,400 per borrower. From 2008 to 2012, debt at graduation increased an average of 6% each year. President Obama has issued several executive orders to help college students with their debt.
Student Loan Bill
It is estimated that 40 million people in the U.S. have outstanding student loan debt, which equals about $1 trillion. Senator Elizabeth Warren (D-MA) sponsored S. 897 (Bank on Student Loan Fairness Act), a student loan bill that would have allowed an estimated 25 million people with older student loans to refinance that debt at current, lower interest rates. Some people have interest rates up to 7% or more.
To pay for the refinancing, the bill would close tax loopholes for the wealthy with a minimum tax of 30 percent on Americans earning between $1 million and $2 million each year. According to the Congressional Budget Office, the bill would increase direct spending by $58 billion between 2015 and 2024, yet at the same time it would bring in about $72 billion due to the closed tax loopholes.
Presidential executive orders
President Obama signed a presidential memorandum and issued his support for the student loan crisis with several executive orders. Including the Pay-As-You-Earn repayment program [see the CengageBrain article, “Are you eligible for the Pay As You Earn plan?”], Obama signed a provision that would renegotiate contracts with private servicers, and a provision for borrowers trying to repay their loans to learn about federal options available to them.
Republicans stop debate in the Senate
Democrats and Republicans see the issue very differently. Republicans say the bill won’t do anything to lower education costs or reduce borrowing, and are calling the bill an election year stunt to capitalize on student loan debt to attract voters. “Senate Democrats don’t actually want a solution for their students, they want an issue to campaign on to save their own hides this November,” said Senate Minority Leader Mitch McConnell (R-KY), reported CBS News.
On June 11, 2014, the Senate voted 56-38 for the bill, four votes short of the 60 needed to advance the bill to debate. After the vote, Warren commented: “Today is a really good day for billionaires. For the 40 million people dealing with student loan debt it wasn’t such a good day.”
President Obama commented: “It would be scandalous if we allowed those kinds of tax loopholes for the very, very fortunate to survive while students are having trouble just getting started in their lives. You’ve got a group of far right Republicans telling students, ‘you’re on your own.’ … If you’re a big oil company they’ll go to bat for you. If you’re a student, good luck,” he added, in “How Obama’s Executive Order Helps Student Borrowers—And Where It Falls Short,” by Maggie McGrath, posted on Forbes June 9, 2014.
Student loan debate is alive and well
Ted Mitchell, an advocate for education reform in California, was recently confirmed and installed as the new Education Department Undersecretary. He said that the issue of student loan debt refinancing has not gone away and that the Education Department will keep the debate alive. “I think that those approaches around refinancing and repackaging are promising, and we’ll continue to pursue that as an option,” Mitchell said during his first public appearance since taking the post, reported Maggie Severns and Allie Grasgreen in “Elizabeth Warren student loan bill stalls” posted on Politico June 11, 2014.
Student loan debt has repercussions
Student loans are associated with household net worth, researchers who used the Survey of Consumer Finances found. In “Is Student Debt Jeopardizing the Short-Term Financial Health of U.S. Households?” by William Elliott and Il-Sung Nam, in Federal Reserve Bank of St. Louis Review, September-October 2013: “The median 2009 net worth ($117,700) for households with no outstanding student loan debt is nearly three times higher than for households with outstanding student loan debt ($42,800)….The main policy implication of the study is that outstanding student debt may jeopardize the short-run financial health of households.”
For more information on student loan debt, visit Questia’s Education library page.
Do you think the government should help people with high student loan debt refinance their loans?