Americans owe $1.4 trillion in outstanding student debt, and borrowers owe an average of $28,000 when they leave school. Many cannot afford to repay the debt which is evident by the delinquency rate. It went up to 11.8 percent in 2016, and there is no reason to believe it won’t continue to increase.
The problem has gotten so big that politicians have taken notice. Their constituents are telling them about their fears and concerns, and politicians are looking for ways to fix the system.
Democratic Senator Elizabeth Warren has been one of the most outspoken critics of the student loan system. She believes that federal lawmakers have influenced the number of loans that graduates have to repay, so she has sponsored and co-sponsored bills to try and change the system.
Bank on Students Emergency Loan Refinancing Act
In May of 2017, Warren reintroduced the Bank on Students Emergency Loan Refinancing Act. This legislation would allow students who already have loans to refinance them at current interest rates. Although they rose several times this year, interest rates were near historic lows back in May. This bill would allow students to save money on interest by taking advantage of federally offered rates.
If passed, this bill will also allow students to refinance their private student loans into federal student loans. Those who are in good standing would have been able to shave several points off their interest rates by taking advantage of the new program if the bill was enacted.
To offset the costs of the plan, Warren intends to implement the Buffett Rule. This rule would apply a tax of at least 30 percent on all people who make more than one million dollars annually.
College for All Act
Senator Elizabeth Warren is also a co-sponsor for the College for All Act of 2017. Her colleague Bernie Sanders sponsored this legislation. If it goes through, it would eliminate the need for student loans for the majority of students attending college.
Elizabeth Warren's student debt plan is relatively straightforward. People from household incomes of under $125,000 would be able to attend a two- or four-year college or university without paying any tuition and fees. Not only would it be easier to attend college, the legislation would also make it easier for people to pay for additional school expenses such as books, room, board, and transportation.
It would include a provision allowing Pell Grant recipients to use the funds to pay for any school-related cost. Right now, they can only use the funds to pay for tuition and fees. It also includes a dollar-for-dollar match to the states that provide students with extra funding for books and other necessities.
In addition, it would increase funding for the Federal Work-Study program. The extra funds would allow the program to reach 1.4 million more students. This would make it easier for students to keep up with the financial demands of college.
The plan isn’t just geared toward public universities. It would also reduce tuition and fees at certain private colleges. Colleges that serve underrepresented minorities will receive part of the $1.3 billion in funds each year. It’s anticipated that around 200 schools would be able to participate in this program.
Interest Rates with the College for All Act
Some students will have to take out student loans even if the College for All Act passes. Warren and her colleagues don’t like the idea of the government profiting off of student loans, so this legislation would cut the interest rates to around 2.5 percent.
Students who already have student loans out can refinance them to the lower interest rate. They can also move their private loans to the federal system to take advantage of the lower interest rate.
Paying for the Program
The College for All Act will not be cheap if it is passed. It’s expected to cost around $600 billion to put all of its provisions in place. Warren and her colleagues have a second act in place to fund the College for All Act. The separate bill will tax Wall Street speculation, stock trades, bonds, and derivatives.
These taxes range from 0.005 percent to 0.5 percent and are expected to bring in around $600 billion in a decade. These taxes have been endorsed by over 1,000 economists who believe it is a good way for the government to make money.
Elizabeth Warren has been against the student loan process for years, and now she has legislation to fight back. Students should keep an eye on this legislation to see what happens in the coming years.