The Plan to Let Americans Refinance Their Student-Loan Debt — and What Democrats Hope to Gain From It

The proposal from Elizabeth Warren doesn’t have a bright legislative future. But it could play well with a key group of voters.

William A. Murphy II, of Raleigh, N.C., a member of the Morehouse College 2002 graduating class, wears a customized cap during commencement ceremonies May 19, 2002 in Atlanta.
National Journal
Elahe Izad
May 16, 2014, 1 a.m.

Sen­ate Demo­crats want to let people re­fin­ance their stu­dent-loan debt through the fed­er­al gov­ern­ment, and they’re count­ing on voters pay­ing at­ten­tion to their ef­forts come Novem­ber.

A pro­pos­al from Demo­crat­ic Sen. Eliza­beth War­ren of Mas­sachu­setts would let Amer­ic­ans re­fin­ance fed­er­al and private stu­dent-loan debt at the same rates stu­dents can get for new loans.

Demo­crat­ic lead­er­ship has pledged to bring the bill to the floor for a vote in the first or second week of June as the latest plank in the “Fair Shot Agenda,” their 2014-elec­tion year le­gis­lat­ive plan that has already in­cluded min­im­um-wage and equal-pay le­gis­la­tion.

Of course, most Demo­crats ac­tu­ally like the policy pro­pos­als they’re push­ing. But they also think they make for ex­cel­lent polit­ics and ap­peal to a broad swath of Amer­ic­ans, in­clud­ing the Demo­crat­ic base they so des­per­ately need to turn out in Novem­ber.

“We think this is an is­sue that is timely, and it’s one that across Amer­ica draws a re­ac­tion you don’t of­ten see,” said Sen­ate Ma­jor­ity Whip Dick Durbin said of the stu­dent-loan pro­pos­al. “Most of us have been around a lot of cam­paigns and a lot of is­sues over a long peri­od of time. I can­not think of a single is­sue that draws such a spon­tan­eous emo­tion­al re­sponse from every audi­ence you speak to.”

Stu­dent-loan debt is a crush­ing weight on many Amer­ic­ans. It has already sur­passed cred­it-card debt, and adds up to more than $1 tril­lion. And, ac­cord­ing to a new Pew Re­search Cen­ter sur­vey, it weighs heav­iest on young­er gen­er­a­tions: 37 per­cent of house­holds headed by someone young­er than 40 has stu­dent-loan debt, which is a re­cord high.

Ad­dress­ing stu­dent loans polls well with young people. One-third of 18-to-30-year-olds “worry a lot” about high stu­dent-loan debt, and 87 per­cent fa­vor lower in­terest rates, ac­cord­ing to a new poll con­duc­ted by Harstad Stra­tegic Re­search. But that doesn’t make this an im­me­di­ate win­ning strategy, polit­ic­ally: Only 28 per­cent of those same mil­len­ni­als said they will “def­in­itely vote” in the 2014 elec­tion.

Last year, Con­gress faced a doub­ling of in­terest rates on cer­tain new stu­dent loans. But rather than ex­tend the lower rates be­fore they doubled, they re­struc­tured the way in­terest rates on new loans are cal­cu­lated by ty­ing them to a mar­ket in­stru­ment. Stu­dents tak­ing out new Stafford stu­dent loans, for in­stance, pay 3.86 per­cent on un­der­gradu­ate and 5.41 on gradu­ate loans. Those rates are locked in for the life of the loan, but de­pend­ing on mar­ket fluc­tu­ations, the rate can change for new loans from year to year.

Un­like last year, Con­gress doesn’t ac­tu­ally face a dead­line to get something done re­gard­ing stu­dent-loan debt — so the im­petus to act quickly just isn’t there.

And just like with min­im­um wage and the Paycheck Fair­ness Act that Demo­crats have pushed in re­cent months, this stu­dent-loan pro­pos­al is a long shot to ac­tu­ally passing the Sen­ate, let alone reach­ing the pres­id­ent’s desk. It’ll need five Sen­ate Re­pub­lic­ans to back it, along with the en­tire Demo­crat­ic caucus.

It’s be­ing paid for us­ing the so-called “Buf­fett Rule” tax on mil­lion­aires that en­sures they are taxed at at least 30 per­cent (it does so by chan­ging the max­im­um tax rate of 15 per­cent on long-term cap­it­al gains). The Con­gres­sion­al Budget Of­fice hasn’t yet provided a score on how much the stu­dent-loan pro­pos­al costs, but Demo­crats say en­act­ing the Buf­fett Rule would cov­er it fully.

Even be­fore War­ren’s pro­pos­al was in­tro­duced, the Sen­ate’s No. 2 Re­pub­lic­an shot it down. “This looks like a dus­ted-off pro­pos­al to raise taxes, and that’s not something I think we need to do,” Sen. John Cornyn of Texas said last week. “Our eco­nomy grew at 0.1 per­cent last quarter.”

Demo­crat­ic lead­ers say they are open to Re­pub­lic­an al­tern­at­ives to pay for the plan, but that’s not really where the com­plete ob­jec­tion lies. Re­pub­lic­ans are weary of the fed­er­al gov­ern­ment get­ting in­to the busi­ness of re­fin­an­cing such loans at all, in­clud­ing private loans.

Re­pub­lic­an Sen. Lamar Al­ex­an­der, the rank­ing mem­ber of the Sen­ate Health, Edu­ca­tion, Labor, and Pen­sions Com­mit­tee, said in a state­ment that War­ren’s pro­pos­al “is start­ing down the road of turn­ing a tril­lion dol­lars of stu­dent loans in­to grants and count­ing spend­ing in a way that the Con­gres­sion­al Budget Of­fice has told Con­gress not to do.”

It’s also un­clear wheth­er Re­pub­lic­ans will of­fer a spe­cif­ic al­tern­at­ive on re­fin­an­cing stu­dent-loan debt; Al­ex­an­der poin­ted to Re­pub­lic­an pro­pos­als deal­ing with school choice, early-child­hood learn­ing, and chan­ging the way col­lege stu­dents can use Pell Grants.

Some of the law­makers who had been in­stru­ment­al in the stu­dent loan deal that was cut last sum­mer said they either haven’t been ap­proached yet about this pro­pos­al or are still think­ing it over. And War­ren and oth­er lib­er­al Demo­crats ac­tu­ally op­posed that deal, say­ing the rates were too high and shouldn’t be tied to the mar­ket.

An Al­ex­an­der spokes­man says there hasn’t been out­reach to the sen­at­or about the new bill. “There’ve been no hear­ings on the bill by the com­mit­tee, there have been no markups, and the com­mit­tee is in the middle of a bi­par­tis­an ef­fort to reau­thor­ize the High­er Edu­ca­tion Act,” Jim Jef­fries said. “It’s hard to see how this could be any­thing more than a mes­saging bill.”

Demo­crat­ic Sen. Chuck Schu­mer of New York, a mem­ber of lead­er­ship, pushed back on the idea that a hear­ing is needed on this pro­pos­al: “We’ve been dis­cuss­ing stu­dent loans here for years. It’s a very simple concept; you don’t need a lot of hear­ings: Should the gov­ern­ment be char­ging people 7 per­cent, when they can charge them 3 or 4 per­cent? Should banks be char­ging them 14 per­cent, when the go­ing rate of in­terest is 3 or 4 per­cent?”

Schu­mer ad­ded, “The bot­tom line is, it’s not a mes­saging bill if they’ll sup­port it.”

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