Senate rejects help for those deep in student-loan debt
The U.S. Senate on Wednesday blocked a bill that would allow some student-loan borrowers to refinance.
Seattle Times staff reporters
When Logan Bahr finished his studies at Central Washington University in 2011, he left with something besides his political-science degree — more than $700 a month in student-loan payments.
Bahr’s parents earned too much for him to qualify for financial aid, but not enough to help pay for college. That forced Bahr to tap out on federal student loans and borrow more from private lenders at higher interest rates.
“I essentially graduated with a mortgage,” said Bahr, who works as a surety bond underwriter in the insurance industry.
Bahr’s debt is part of $1.2 trillion in outstanding student loans nationally, all but $100 billion of that owed directly to the federal government.
On Wednesday morning, the U.S. Senate blocked a bill that would offer Bahr and 25 million student-loan borrowers relief. Introduced by Sen. Elizabeth Warren, D-Mass., the bill would have allowed undergraduate loans taken out before July 1, 2013, to be refinanced at 3.86 percent — half the rate some earlier borrowers are paying.
Rates on loans made to parents and to graduate students also would be lowered, to 6.41 percent.
The Bank on Students Emergency Loan Refinancing Act had 43 Democratic co-sponsors — including Sens. Patty Murray and Maria Cantwell of Washington — but failed to garner the 60 votes needed to filibuster-proof the bill. The measure went down 56-38, with three Republicans siding with all Democrats to advance to debate.
About 451,000 Washington residents could benefit from the refinancing bill, according to the Domestic Policy Council and the Council of Economic Advisers. About 56 percent of graduates from Washington colleges have student debt, with the average borrower owing about $23,000.
Offering lower rates would cost the federal government an estimated $51 billion over 10 years. Warren has proposed offsetting that by requiring households with adjusted gross income of more than $1 million to pay at least 30 percent of that in federal income taxes, which would net $72 billion over the same period.
Many Republicans oppose that tax increase.
The vote came two days after President Obama signed an executive order to help pre-2007 borrowers. He made 5 million people eligible for the “Pay as You Earn” program, under which borrowers can cap payments to 10 percent of their discretionary income. Balances remaining after 20 years for private-sector workers and 10 years for public-sector workers are forgiven.
The Obama administration in 2012 estimated that borrowers would be allowed to wipe out an average $41,000 in unpaid balances.
Murray said Tuesday the weight of student loans is dragging down the economy and leaving young people strapped as consumers.
A growing number of economists are raising concerns that student debt is preventing young workers from qualifying for mortgages, buying new cars and saving for retirement.
Murray said it would be to the benefit of taxpayers to boost economic activity even at the cost of forgoing revenue from interest income.
Default rates on student loans are higher than for credit cards, mortgages and other types of borrowing.
The problem can be traced in part to the recession, when tax revenues dried up and legislators slashed state support for tuition. Across the nation, tuition skyrocketed at state colleges and universities, and stories of graduates with tens of thousands of dollars in loan debt became increasingly common.
Washington’s public four-year colleges had the second- largest tuition hike of any state during the recession.
Bahr owes more than $40,000 and tried to get his lender, a major commercial bank, to refinance — but the lender wouldn’t budge. He’s thinking of moving out of Seattle because rents are rising so much — “any way to free up some cash, given the fixed cost these loans represent,” he said.
He drives a 10-year-old car, doesn’t subscribe to cable service and has taken very few vacations since he graduated.
Austin Wright-Pettibone, a University of Washington sophomore, expects to have $32,000 in loans when he graduates. He also works at a part-time job, but because college costs have gotten so high, he has to rely on loans.
“The biggest thing with this legislation is that the government is actually trying to do something to help us,” he said. “The reality is that it is a huge financial burden to go to school.”
While Bahr was in school at CWU, tuition and fees rose nearly 40 percent. Today, the estimated cost of attending the Ellensburg university, including living expenses, is about $22,000 a year for an in-state undergraduate.
Bahr has been working on the issue since he graduated. He’s chairman of a political-action committee, Graduate Washington, which is working to maintain and expand access to higher education in this state.
Bahr faulted the student-loan process as too complex. The long-term ramifications of borrowing are not always clearly explained to 18-year-olds, many of whom have never even had a credit card.
But the biggest issue is how fast college tuition has increased, Bahr said.
“Debt is not the problem,” he said. “The problem is the cost of education. Debt is after the fact.”
Katherine Long: 206-464-2219 or email@example.com. On Twitter @katherinelong.
Kyung Song: 202-383-6108 or firstname.lastname@example.org. Twitter: @KyungMSong