Democrats are directing some of their election-year energy on student loan borrowers with two plans that could lower monthly payments for millions. Sen. Elizabeth Warren's bill to allow borrowers to refinance their federal student loans now has the backing of President Obama, who will announce on Monday his own executive action to expand who qualifies for a law that limits loan payments to 10 percent of a borrower's monthly income. And while the plans won't make college more affordable (Warren's bill might not even pass), they could make things a little easier for graduates who've been struggling to keep up with their loans over the last few years.
Obama's executive action
The plan: Obama would expand a 2010 law that limits federal loan payments to 10 percent of a borrower's discretionary income, according to The New York Times. After 20 years your debt is forgiven (or 10 years if you're a public servant). Before, the law only applied to newer loans — if you borrowed your loan before October 2007 or stopped borrowing before October 2011 then you were out of luck.
The executive action would expand income-based repayments to 5 million borrowers starting in December 2015. The action would also encourage lenders to help prevent borrowers from going delinquent on their loans, and work with the Department of Treasury to make sure borrowers know they're eligible for college tuition tax breaks.
Limitations: This only applies to federal loans, though the majority of student loan debt comes from federal loans. According to American Student Assistance, in 2012 there $864 billion in outstanding federal student loan debt and only (only) $150 billion in private student loan debt. The bad news is that private loans tend to have higher interest rates.
The plan: Last year Congress tied the rate of new subsidized federal student loans to the rate of Treasury bonds, preventing the rate from jumping to 6.8 percent. But older borrowers were, once again, out of luck. Warren's plan would allow federal loan borrowers to refinance their loans at the current rate for new undergraduate loans — 3.84 percent — and allow the government to refinance private loans at the lower rates, too, according to Mother Jones.
Limitations: The bill itself is limited by the fact that it requires private loan borrowers to show that they're in good standing with their loan to qualify for a federal loan with a lower rate. Some experts worry that means the people who need assistance the most — private borrowers who've fallen behind on their loans — won't get help.
Getting the bill passed could be another problem. The law increases spending by $51 billion between 2015 and 2024 according to The Hill, and Warren wants to pay for that by raising taxes on the rich. It's part of the Democrats "Fair Shot Agenda," which includes issues like raising the minimum wage. For those reasons — it plays into the Democrats' election strategy and raises taxes on the wealthy — Republicans aren't on board.