Jennifer Day spends 12 percent of her monthly take-home pay on debt that funded a master’s degree in urban and regional planning, money she’d rather be saving toward a home.
“I spend $364 a month for student loans,” said Day, 33, who conducts market research for the hospitality industry at a consulting firm in New Orleans. “To me, that is a down payment or ultimately savings down the line.”
Under a bill sponsored by U.S. Senator Elizabeth Warren, a Democrat from Massachusetts, Day would save about $75 a month on her payments. The legislation, which could reach the Senate floor as soon as tomorrow, would let borrowers with federal and private loans refinance their balances at lower interest rates.
Alleviating the burden on student-loan borrowers, who have amassed more than $1.2 trillion in debt, has been a focus this week of Democrats concerned about their drag on the economy. President Barack Obama issued an executive order yesterday to expand a program easing student-loan payments. He also endorsed Warren’s bill, which would help former graduate students like Day, whose federal loans typically carry higher rates than those on undergraduate loans, with some as high as 8.5 percent.
The bill, co-sponsored by Democratic senators including Al Franken of Minnesota and Dick Durbin of Illinois, would be paid for by imposing new taxes on wealthy individuals. It would let borrowers refinance using 2013-2014 interest rates set for their type of loan. For example, someone who took out an undergraduate Stafford loan in the 2011-2012 year at a 6.8 percent interest rate could refinance at the 2013-2014 rate of 3.86 percent.
To advance the measure, Democrats would need the support of at least five Republicans. Democrats control 55 seats in the 100-member chamber and 60 votes are needed to move it forward. Senator John Thune, a South Dakota Republican, said he has concerns about the bill, including that it doesn’t help current or future college students.
“The thing that people who have college debt need right now more than anything is a good job,” said Thune, the third- ranking Republican in the Senate. That’s where Congress should focus its attention, he said.
Day is already enrolled in one federal program that lets her pay less each month by stretching out her payments to 25 years. Her loans have interest rates of 6.8 percent and 7.9 percent. She’s rarely missed a payment, yet her balance of $46,749 has barely budged from when she graduated four years ago because most of her payment goes toward interest. Day had no debt from her undergraduate years at the University of Wisconsin-Eau Claire.