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U.S. Senator Elizabeth Warren of Massachusetts wants the next debate in Congress on student loans to focus on helping borrowers refinance their debt.
Sen. Warren is introducing a bill that would open the door for potentially millions of recipients of federal loans to refinance at the same rate current recipients can get. Undergraduates, for example, qualify for loan at a 3.86 percentage rate.
The bill is part of a larger effort by Democrats to focus on college costs leading up to the November election. Reps. George Miller, D-Calif., and John Tierney, D-Mass., were to file a companion bill in the House.
On how much of a difference this would make to student loan holders
“The answer is, a lot. And of course it depends on exactly how much debt the students got and how old the loan is, because the older they are, for a lot of them, the interest rate’s higher. But what this will mean, is for many many students it will be hundreds of dollars a year and for many many more it will be thousands of dollars a year that they will save if the interest rates are refinanced.”
On her argument that the money saved would go back into the economy
“You bet. In fact, I’m not just making that case, that’s the case the Fed is making, the Treasury is making, the Consumer Financial Protection Bureau, because they’re all worried that right now what’s happening is that student loan debt is crushing young people. And so they’re not doing the things we would expect them to do. They’re not moving out of their parents’ homes in as big a numbers, they’re not saving up money for down payments, they’re not buying homes or cars or starting small businesses or doing any of the things that help move this economy forward.”
On whether rising college costs are the real root of the problem
“There’s no doubt about it, refinancing won’t fix everything that’s broken with our higher education system. We’ve got to bring down the cost of college. And we need more accountability for how schools spend federal dollars now. So I think there are a lot of things we can do, but I want to be clear about this — the need for comprehensive reform must not blind us to the urgency of addressing the massive debt that’s already crushing our young people.”
On how student loans are treated differently when it comes to refinancing
“Let’s just remember that right now, homeowners have refinanced because interest rates are low. Small businesses have refinanced because interest rates are low. Heck, even municipalities have refinanced their debt while interest rates are low. But students — or former students — don’t have the capacity to do that. There’s nothing in the law to permit that. And so we’ve got now 40 million students out there — former students — who owe student loan debt and they’re paying a huge amount.”
JEREMY HOBSON, HOST:
It's HERE AND NOW, and today Democratic Senator Elizabeth Warren of Massachusetts introduced a bill to tackle the trillion-dollar student loan debt problem. Warren's idea is to allow people with higher interest rates to refinance their loans at lower rates, which would cut income for the federal government, so she's proposing what is called the Buffett rule, which would raise taxes on the rich.
Senator Warren joins us now from Washington. Welcome.
SENATOR ELIZABETH WARREN: Thank you, it's good to be here.
HOBSON: Well how much of a difference do you think it would make for an individual for an individual to be able to refinance a student loan down to, let's say what, 3.86 percent or something?
WARREN: Yeah, the answer is, a lot. And of course it depends on exactly how much debt the students got and how old the loan is because the older they are, for a lot of them, the interest rate's higher. But what this will mean, is for many, many students it will be hundreds of dollars a year, and for many, many more it will be thousands of dollars a year that they will save if the interest rates are refinanced.
HOBSON: And you're making the case that they would then take that money and pump it into the economy by buying things, spending their money.
WARREN: You bet. In fact I'm not just making that case, that's the case the Fed is making, the Treasury is making, the Consumer Financial Protection Bureau because they're all worried that right now what's happening is that student loan debt is crushing young people. And so they're not doing the things we would expect them to do.
They're not moving out of their parents' homes in as big a numbers, they're not saving up money for down payments, they're not buying homes or cars or starting small businesses or doing any of the things that help move this economy forward.
HOBSON: Although bringing down the interest rate is not going to do anything about the principal. They may still end up with hundreds of thousands of dollars of student loan debt.
WARREN: Yup, we have to look at this as a step in the right direction. It will help them manage their debt better. It will bring down their payments, but they've got to pay back all of the principal.
HOBSON: Well, what about that, the fact that college costs have gotten so incredibly high, people are now spending in some cases $50,000 a year, $60,000 a year to go to college? Isn't that the root of it? And what can be done about that/
WARREN: Oh look, there's no doubt about it, refinancing won't fix everything that's broken with our higher education system. We've got to bring down the cost of college. And we need more accountability for how schools spend federal dollars now. So I think there are a lot of things we can do, but I want to be clear about this: The need for comprehensive reform must not blind us to the urgency of addressing the massive debt that's already crushing our young people.
HOBSON: But what about the argument that has been made by conservatives, including the former Education Secretary Bill Bennett, that adding more federal aid, which essentially this would do, you're shifting the burden of the cost here, would just allow colleges to jack up their prices even more because the students who are paying for it or think they're paying for it right up front in fact aren't paying for it? They're putting it onto a student loan that's being subsidized even further.
WARREN: Well, let's be real clear. Student loans are not subsidized. What's happening right now is the interest rates are set so high that they are producing literally tens of billions of dollars in profits for the federal government. So what this bill is about is it's about bringing that interest rate down to a rate that at least take some of that profit out of the system.
Let's just remember that right now, homeowners have refinanced because interest rates are low. Small businesses have refinanced because interest rates are low. Heck, even municipalities have refinanced their debt while interest rates are low. But students or former students don't have the capacity to do that. There's nothing in the law to permit that.
HOBSON: Senator, though, if it's just about profit and how much profit the government is going to take, then why do you propose making up the difference by adding an additional tax, the Buffett Rule?
WARREN: Those are the rules right now of Congress, that if you're going to take away a revenue source, you've got to find some way to make it up. And so the proposal in this program is to make it up through the Buffett Rule, to say we're going to close the tax loopholes so that billionaires have to pay at least as much in taxes as their secretaries do.
HOBSON: But that is an idea that was floated and was not embraced by Republicans. Do you think there's any chance that they would embrace it now to help bring down the cost of student loans?
WARREN: Well, I want to start with the fact that the interest rates proposed in this bill are the interest rates that nearly every Republican in the House and the Senate last year voted to have as the right interest rate for new loans for students who borrow money this year. And Republican leaders like Speaker of the House John Boehner embraced these rates for new undergraduate borrowers, calling them consistent with Republican policy proposals.
So they are on record saying these are the right interest rates; we just have to find a way to pay for them. And look, I think this is - pretty much puts it out there in a pretty simple way. We can either subsidize billionaires, or we can help support our students who are trying to get an education, one or the other.
HOBSON: Senator, I just finally want to bring you back to the big number, the trillion dollar number that is the amount of outstanding student loan debt. How big of a problem is that for our economy?
WARREN: It is a hug problem for our economy. It's both destabilizing to individual families, but it's having a measurable economic drag on our economy overall. This is a bill that's good economics. It's also, in my view, good values.
HOBSON: There are some people who say it's not as bit of a - it's not a crisis, that we can have that amount of debt and that people are taking our reasonable amounts of money to pay for student education.
WARREN: Well yeah, that's what people were saying the mortgage loan crisis, too. But make no mistake. This is an emergency. Student loan debt is exploding. From 2004 to 2012, for example, the average student loan balance increased by 70 percent. That's in less than 10 years. the debt keeps going up and going up and going up.
We've got to deal with this. And, you know, look, this is personal for me. I was the first person in my family to graduate from college. I went to a commuter college where tuition was $50 a semester and it opened a million dollars for me. I got a fair shot because I grew up in an America that made it a priority to invest in young people.
I believe in that America. That's what this bill is about.
HOBSON: Well, so are we ever going to get to a point where people are guaranteed a college education the way that they're guaranteed a high school education?
WARREN: No. This is about - what we're working on right now are the 40 million people who did exactly what we asked them to do. They went out, they got an education, but they weren't born into families where mom and dad could just write a check and pay the whole ticket up front. They had to finance their education.
This says they've still got to pay back all of the costs of their education. They've still got to pay all those administrative costs on the loans and the cost of borrowing the money and the bad debt losses. It just says the United States government should not make billions and billions and billions of extra dollars from those students who are trying to deal with student loan debt.
HOBSON: Senator Elizabeth Warren, Democrat of Massachusetts, thanks so much for joining us.
WARREN: Oh, thank you for having me.
HOBSON: And you can let us know what you think of Senator Warren's proposal at hereandnow.org. Transcript provided by NPR, Copyright NPR.