President Obama urge Congress to pass the Senate Democrats’ bill to help more young people save money by refinancing their federal student loans — which is expected to come up for a vote on the Senate floor on Wednesday.
The bill, Bank on Students Emergency Loan Refinancing Act, sponsored by Sen. Elizabeth Warren, D-Mass, would allow an estimated 25 million Americans to refinance student loans, federal and private, at lower interest rates. A Congressional Budget Office report estimated that in the next few years $460 billion of federal student loans would be refinanced under the Warren measure — almost half of all outstanding federal student loans — and roughly half of private loans, or about $60 billion worth, would be restructured if the program passed.
The reduced interest payments would cost the government about $56 billion over 10 years, reported the CBO. To compensate, the legislation would raise about $72 billion by imposing a new minimum tax on individuals with an adjusted gross income between $1 million and $2 million.
On Monday afternoon, President Obama delivered remarks and signed a Presidential Memorandum that will allow an additional 5 million borrowers with federal student loans to cap their monthly payments at just 10 percent of their income, which is expanding a 2010 law that did the same. This new expansion will now apply to individuals who took out their loans before October 2007 and stopped borrowing by October 2011, and who are currently ineligible.
Sen. Charles E. Schumer, D-N.Y., applauded Obama’s executive actions taken Monday, but also suggested more needs to be done.
“[T]he Administration’s decision to cap federal loan repayments at 10 percent of a borrower’s monthly income, plus total loan forgiveness after 10 to 20 years, is welcome news that will spell relief for hundreds of thousands of New Yorkers,” Schumer said.
He said the Senate bill up for a vote this week would reduce student loan interest rates to as low as 3.86 percent, whereas today “young families to pay between 7 and 14 percent on tens of thousands of dollars-worth of student loans.”
The Presidential Memorandum outlines a series of new executive actions, such as promoting awareness of repayment plans; educating students, families, financial aid administrators and tax preparers so all students and families understand and receive what education tax benefits for which they are eligible; and strengthening incentives for loan contractors to serve students well.
During his weekly address on Saturday, the President again urged Congress to do their part by passing Senate Democrats’ bill, and he will continue to encourage these efforts in a Tuesday question-and-answer session about student loan debt on the Tumblr social-networking website.
“Senate Democrats are working on a bill that would help more young people save money,” President Obama said in his weekly address. “Just like you can refinance your mortgage at a lower interest rate, this bill would let you refinance your student loans. And we’d pay for it by closing loopholes that allow some millionaires to pay a lower tax rate than the middle class.”
– Related ThinkAdvisor story: As Student Debt Hits $1.2 Trillion, Senate to Debate Loan Refinancing Bill