Rubio Student Loan Bill: A Re-fi Re-think?
NEW YORK ( MainStreet) With the Democrats' student loan re-finance bill dead in the Senate , Republican Senators Marco Rubio (R-Fla.) and Mark Warner (D-Va.) have offered an alternative .
The Dynamic Student Loan Repayment Act, introduced last week, features an automatic income-based adjustment for monthly payments on loans with balances that top $10,000. Current loans, deferments, forbearances and other repayment options would be replaced by one loanthe Income Dependent Educational Assistance Loan. All Federal borrowers would enroll and have payments deducted from their salaries. Interest rates would be tied to the 10-year Treasury Bill as they are currentlyand will likely increase .
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The Rubio-Warner proposal is aimed at new borrowers who are just entering the workforce and are concerned about unaffordable loan payments.
"Our current loan repayment system often turns what should be reasonable debts into crippling payments," Rubio and Warner said in a joint July 18 statement. "Some graduates are forced to work multiple jobs, often in fields they didn't train for, simply to keep from defaulting on these loans."
The Rubio-Warner bill also includes a provision for loan forgiveness after 20 years for loans less than $57,500 and after 30 years for loans exceeding that amount.
The current system lets borrowers with a partial financial hardship the Department of Education defines what that isapply for income-based repayment , which amounts to as much as 15% of the borrower's monthly income. After 25 years of qualifying monthly payments, the remaining balance on the loan is forgiven.
Rubio, who has presidential aspirations, seems to have used the defeated student loan re-finance bill introduced by Senator Elizabeth Warren (D-Mass.) as an opportunity to become identified with a traditionally Democratic issue. Just before the Warren bill was shot down in the Senate last month, Senator Mitch McConnell (R-Ky.) said of the Democrats, "They want an issue to campaign on." So, apparently, does Rubio.
The Warren bill, which Rubio voted against, would have allowed borrowers with loans taken out decades ago at higher interest rates to be re-financed. The Rubio bill doesn't have the comprehensive re-financing options that the Warren bill had, which would have covered private as well as Federal loans.
With over $1.2 trillion of outstanding education debt in America and the vast majority of current college students taking out loans, there's urgency around an issue many associate with stagnant economic growth. Consumers with big loan to pay off have less capacity to spend and save while their credit scores get whacked.