Despite much media fanfare and an endorsement from President Barack Obama, Massachusetts Democratic Sen. Elizabeth Warren’s ballyhooed student loan bill died quickly on the floor of the Senate Wednesday. The vote was 56-38.
Warren’s soak-the-rich bill would have employed a controversial tax increase on millionaires to allow borrowers to refinance at a lower interest rate.
So what’s next for student loans?
It could be a proposal by moderate Republican Tom Petri. The long-serving Wisconsin congressman’s solution to the ongoing student-loan crisis would allow borrowers to repay their loans based on their individual incomes and it would cost taxpayers – even the rich ones – nothing.
Petri’s automatic, refreshingly simple income-based repayment plan would also replace a confusing set of Department of Education regulations that offers not one but two red tape-laden income-based repayment options to only certain people.
In a nutshell, Petri’s plan would deduct cash from every borrower’s paycheck based on take-home pay.
As Slate explains, a student with $26,000 in college loans (at a 4.7 percent interest rate) would owe $272 each month on a standard 10-year repayment schedule. That’s a hefty amount for someone making, say, $25,000 per year — and bringing home maybe $1,650 per month.
On an income-based plan capped at 15 percent, though, the same borrower would be required to pay a much more affordable $94 each month. Someone who earns $38,000 annually could expect to owe about $250 every month.
Borrowers who are generating little or no income wouldn’t have to pay on their loans at all until their financial situations improve.
Petri is not a fan of Warren’s tax-increasing bill. Nor does he endorse President Obama’s announced expansion of an existing “Pay As You Earn” program that aims to limit more borrowers’ student loan payments to a maximum of 10 percent of monthly income. (RELATED: Obama Throws A Bone To Americans Crushed With Student Loans)
“The president’s proposal moves us in the wrong direction by taking a complicated, expensive repayment option and simply expanding it,” Petri said in press release obtained by The Daily Caller. “Basing payments on income makes sense, but I’m always hearing from students who need affordable payments but don’t take advantage of these options because the system is too confusing and bureaucratic.”
The senior member of the House Education and Workforce Committee also noted that taxpayers would be required to pick up the tab for billions in unpaid loans under any large-scale loan-forgiveness program.
“Instead of using his ‘pen and phone’ to make these changes, the president should work with lawmakers on both sides of the aisle to repair our student loan system and help all borrowers who are struggling,” Petri argued.
Meanwhile, Democrats and various leftists are angry about the defeat of the Warren bill.
Senate Majority Leader Harry Reid (D-Nev.), who voted against the bill so he could vote for it later (under the Senate’s byzantine procedures), scolded Senate Minority Leader Mitch McConnell and his fellow Republicans for not embracing higher taxes to pay for student loans.
“In America today, millions of Americans are caught in financial quicksand, and they are looking for a helping hand to pull them to safety,” Reid said, according to Roll Call. “Instead, the Republican leader has reaffirmed his commitment to the status quo.”
The National Education Association was also peeved.
“As President Obama said Monday, some in Congress are working hard to block any progress on this issue and any others that will help working families,” NEA president Dennis Van Roekel said in a statement obtained by TheDC. “Instead of fighting for working families and college affordability, some members of Congress are fighting to keep their millionaire constituents from paying their fair share of taxes.”
The Progressive Change Campaign Committee, a grassroots left-wing organization that claims over 1 million members, says that the Republicans (and several Democrats) who voted against the bill voted have now handed Democrats a tremendous opportunity on the issue of college affordability for the 2014 electoral season. (RELATED: Liberals On Elizabeth Warren Loan Bill: It’s A Trap!)
Student loan debt in the United States currently hovers around $1.2 trillion collectively.
Last month, a study from the Pew Research Center found that college graduates who are under 40 years of age and who have accumulated student debt have a median net worth of just $8,700. (RELATED: Student Debt-Laden College Grads Under 40 Have $8,700 Median Net Worth)
As of November 2013, cumulative student loan debt owed to the U.S. federal government had increased 463 percent during the Obama presidency. (RELATED: Student Loans Skyrocketed 463 Percent Under Obama)
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