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.