Senator Elizabeth Warren’s student loan bill may have failed to pass through the Democrat-controlled Senate in June, 2014, but it’s not as dead in the water as that might lead you to believe.
In fact, on August 16th, President Obama reaffirmed his intent to support her recent proposal – officially called the Bank on Students Emergency Loan Refinancing Act – proving that there’s still hope for those hoping to be able to refinance their Federally-funded student loans.
The Warren student loan bill would provide a tremendous opportunity to many of those with Federal student loan debt, as interest rates continue to hover near historic lows, and significantly lower than they were throughout the 80’s, 90’s and first decade of the 2000’s.
According to President Obama’s administration, the bill would allow about 25 million Americans to save something like $2,000 off the lifetime costs of their Federal student loans, which may not seem like much, but is another step in the right direction toward ending the disastrous student loan debt crisis currently gripping the country.
Senate Republicans might have successfully torpedoed Senator Warren’s student loan reform bill for now, but the fight is far from over.
With the impending mid-term elections, and the President race about to kick into gear, it’s likely that student loans will become a serious wedge issue, so we should see some significant discourse about solutions in the near future.
Elizabeth Warren’s bill could take center stage during those discussions, with incumbents on both side of the isle being forced to cast a vote proving once and for all whether or not they’re on the side of the American people, or special interests (big banks).
The provisions of the bill call for reducing the Federal student loan interest rate by 4%, which doesn’t seem like much, but would make a massive difference for some borrowers – and especially those having trouble paying off their loans.
Should the bill get passed, it’s likely that young people will see the most value out of it, especially recent college grads, a demographic group that tends to skew toward voting for Democrats, and another potential reason why Republicans have so adamantly opposed Senator Warrens measure.
Why Does It Matter?
Leading economists, bankers, realtors, politicians and observers like myself all agree that our country’s $1.2 trillion (with a “T”) in outstanding student loan debt is slowing economic growth by preventing young people from being able to purchase new cars, homes and other products that power our economy.
The fact that so much potentially disposable income is being funneled directly into the hands of the big banks threatens to pull us back into another significant recession, perhaps even worse than the financial crisis we faced in 2008.
Even the Federal Reserve Bank of New York has chimed in on the problem, though not specifically mentioning that student loans are the culprit, with their 2012 report that the average debt per American borrower now sits at something like $25,000 – a 70% increase since 2004!
Suffice to say, for the average household, it seems that things have gotten significantly worse since 2012, so it’s likely the true average debt figure is actually significantly larger.
Other Forms of Financial Assistance
Even if Senator Warren’s bill never sees the light of day again, the good news is that there have been some significant, recent updates to Federal student loan programs providing massive financial assistance for those in need.
Perhaps the most well-known update made in recent years was the introduction of President Obama’s student loan forgiveness program, which saw the introduction of a new Income-Based Repayment Plan called the Pay As You Earn student loan repayment plan.
Pay As You Earn allows individuals who qualify for the program to set their monthly student loan payments at just 10% of disposable income, but it also offers comprehensive student loan forgiveness once you’ve made enough payments to qualify for the benefit.
Unfortunately, not everyone with Federal student loans is eligible to take advantage of the Pay As You Earn plan, but the President’s most recent Fiscal Year Budget did propose to open the program to anyone who has taken out a Federally-financed student loan.
Let us know what you think about Senator Elizabeth Warren’s student loan bill in the comments section below.
Would a 4% interest rate reduction make a significant difference in your financial health? Or is it a band-aid that doesn’t do enough to make a significant difference?
We want to know what you think about the proposal, so please join the conversation below.