Elizabeth Warren’s Student Loans Bill

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.

What’s Next?

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.

Questions? Comments?

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.

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Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt, where he offers advice on paying off student loans as quickly, and cheaply, as possible. His new website Forget Tax Debt, offers similar advice to people with back tax problems.

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  1. Would a 4% interest rate reduction make a significant difference in your financial health?

    YESSSS. I currently have $30,000 in loans with a 7.5% interest rate, standard repayment plan, minimum payment of $225 per month, and it would take me 22 years to pay off and I would pay just about $30,000 on interest as well the $30,000 in principal ($60,000). This is crazy and not explained well when i took out these loans. It makes it harder for individuals to go to school and then providing a living for themselves after school with the constant pressue of debt hovering over them for almost the rest of their life. I also do not see a light at the end of the tunnel, as someone else commented above, when i make my minimum payment of $225,00 and only $40 goes to principal. We need to lower the federal interest rate for school loans for individuals who already have these loans and have been struggling with them for years. My interest rate for my school loans is higher than my home interest rate and that should not be that way. We should be encouring young Americans to enroll in school and help move our country forward by investing in their future. I support Elizabeth Warren!

    • Hi Gabriel,

      Thanks for giving your opinion on the issue. I think you’re right and that the interest rate reduction is the most likely next step in Federal student loan reform. At the time of writing, I was hoping for more COMPLETE forgiveness benefits, but I’m slowly realizing that it’s unlikely that we’ll see anything else along those lines, and increasingly likely that we’ll get the interest rate reduction, which will help out a lot of people.

      I think you will be happy with any of the 2016 Presidential Candidates Plans for Student Loan Debt, as both Hillary and Bernie are proposing interest rate reductions, but you might be surprised that even some of the Republicans are putting forth similar proposals. 2016 is shaping up to look like a pretty good year for student loan debt, and I see good odds some serious reform on the horizon. The most likely change (my opinion) is that refinancing will become possible, and interest rates will be reduced.

      So hang tight, and keep checking back. I’ll be sure to update the site as soon as anything else is announced.

  2. Hi Tim:

    I came across your webpage during my search to find relief for student loan debt. I’ve had my loans since 2005, I don’t believe they are any longer Federal loans, I believe I have been sold off to a private bank and am now subject to their interest rates and terms. I spoke to AES who is the servicer for my -consolidated loans and was told I’d need to transfer my current loans into a federal loan to possibly qualify for a forgiveness. I called The Department of Education:800-872-5327, but got the run around, no one seemed to be able to help me. I have reviewed every possible forgiveness program, and I don’t seem to qualify for any of them, as I work in private industry.

    For the last 12 months only $17.00 went towards my principle, out of the $4000 I paid towards my loan.
    My question is, what can I do to get out of this horrible trap I’ve been placed in? I need help to find a better solution for my situation, can you provide me some suggestions or direction?

  3. Kat McNabb says:

    I have a $50,00 FASA consolidated income based loan at age 63. Being a female with a mortgage, car payment and diligently watching spending on an income of $43,000 and only a $12,000 retirement fund, I find it very discouraging that there is no light at the end my tunnel to ever see the end of my school loan payments. Circumstances of unemployment, working for low paying not for profits, and being a single female have hindered my financial stability. The loan sucks up 12% of my net worth and the loan payment increases with every salary increase. It is a no win situation of ever obtaining financial gain.
    Education is the key to success,(??) however, obtaining a degree late in life ( age 50) certainly hinders the golden years of retirement!

    • Hi Kat,

      Thank you for sharing your situation and I’m sorry to hear about the circumstances you’re facing.

      Have you looked into the Public Service Loan Forgiveness Program? If you’re working at a not for profit, then you have a really good chance of being able to qualify for total forgiveness on Federal Student Loans after making enough payments to satisfy the program’s requirements.

      This is a fantastic opportunity for someone like you, and one that you should definitely be taking advantage of. Check out my page about PSLF benefits here.

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