Democrats Have a Radical New Plan to Solve Student Debt — And It Could Really Work
The news: With the midterm elections on the horizon, Democrats are already pushing their next big policy idea: college affordability.
On Tuesday Sen. Elizabeth Warren (D-Mass.) introduced her student debt bill, which she announced back in March. The bill, which already has 20 co-sponsors, would give millions of college students the ability to refinance their loans if interest rates change and drop below whatever they're currently paying. Many undergraduates, for example, would be able to refinance to a 3.86% rate. A companion bill is expected to be filed in the House soon.
"I think bringing down the interest rates on existing student loans would be a huge benefit for young people who are trying to build some economic security and for this economy," Warren said.
How it works: Refinancing student loans sounds good in theory. The same options are available to people who refinance home loans, so the practice isn't entirely novel. However, there's one major issue that would come from these refinancings: a profit shortfall for the federal government. The government stands to make $66 billion from loans that were issued between 2007 and 2012 alone, and they won't be happy to lose that money. But Warren has a solution for that: enact the Buffet Rule, which would establish a new 30% minimum income tax on those making more than $1 million a year and potentially generate upwards of $50 billion in annual revenue. (This idea has been introduced before but failed to make it out of the Congress last April.)
This collected money would then be funneled "dollar-for-dollar" into refinancing existing student loans at lower interest rates, thereby easing the decades-long debt that many graduates carry. Warren believes the money couldn't come from a better source: "It's billionaires or students," she said.
According to Warren's estimates, recent graduates with maximum undergraduate loans would see "their payments drop by $1,000 a year, and total interest paid over the life of the loan could be cut nearly in half." Those with graduate or private loans would save even more.
"When interest rates drop, people can refinance their home, they can refinance their business debt. It's regarded as a smart move for any consumer or business. But student borrowers are prohibited from doing that under most programs," Warren said. "This bill says we're going to change that and let them refinance that down to current low rates."
This is a battle Warren has been fighting for a while now, but hopefully these relatively simple suggestions will at least be considered.
The controversy: Any time taxing millionaires is thrown into the equation, people are bound to get upset, and this is no exception. (They are, after all, the job creators, right?) Warren has already received significant pushback from her conservative colleagues over the Buffet Rule, though she's open to dropping it if a better revenue stream can be found, saying, "I would be delighted to work with the Republicans to find a way to pay for this."
Other skeptics believe that Warren's bill is nothing more than an election-year political stunt. As Slate's Jordan Weissman put it, this is mostly political theater: "Republicans will surely vote against the bill, which will let Democrats say the GOP sided with the rich and against students. End of scene."
But while the Buffet Rule might be the most controversial component of Warren's bill, America's millionaires — the ones who will actually be affected by this legislation — might not be as resistant as one might think. A recent CNBC survey found that the majority of American millionaires are concerned about income inequality, with nearly two-thirds supporting higher taxes on the wealthy and higher minimum wage. If they're willing to back a measure like this, perhaps Warren's bill is not as impossible as it seems.