U.S. households struggling with expensive student debt would be able to refinance into cheaper loans at no cost to taxpayers under legislation to be proposed by Ohio's senior senator.
Sen. Sherrod Brown (D-Ohio) will unveil as early as today a proposal to grant the secretary of the treasury, a position Jack Lew now occupies, the authority to create a government-backed financing vehicle that could enable millions of distressed borrowers to refinance student debt not guaranteed by the government into new loans with significantly lower interest rates, according to a draft copy of his eight-page bill.
Brown’s legislation comes amid increasingly dire warnings from regulators and policymakers concerned that outstanding student debt -- now valued at nearly $1.2 trillion -- may put the economy at risk as overburdened households curtail spending, investment and savings in order to pay student loans, despite more than four years of record low borrowing costs.
“Why should our students and graduates be the last to benefit from historically low interest rates?” Brown said. “Helping graduates refinance their private student loan debt into more affordable terms frees up funds for them to buy houses, start businesses, or contribute to their communities. It makes sense for our students and graduates and it makes sense for our economy.”
Last month, President Barack Obama said that the $26,000 in debt carried by the average new college graduate “holds back our entire middle class.” Student loan payments “can last for years, even decades, which means young people are putting off buying their first car or their first house -- the things that grow our economy and create new jobs,” Obama added.
While most lawmakers appear to be chiefly concerned with the impending doubling of interest rates set to affect roughly a quarter of all future federal student loans starting Monday, Brown joins a small but growing group of legislators including Sen. Kirsten Gillibrand (D-N.Y.) attempting to help current borrowers.
About 60 percent of all federal student loans carry interest rates above 6 percent, according to July 2012 Department of Education data cited by the Center for American Progress. About three-quarters of all new federal student loans carry interest rates of 6.8 percent or 7.9 percent, forcing borrowers to pay record relative rates on their loans.
The rates, fixed by Congress, have not been updated to reflect the near-record low interest rate environment. For example, when Congress set the rates in 2007, the average new 30-year, fixed-rate mortgage could be had for about 6.3 percent, according to Freddie Mac, the government-backed mortgage financier. The average new 30-year, fixed-rate mortgage now carries a 3.9 percent interest rate.
The gap between what students and households pay to finance a college education and what the U.S. government pays to borrow has led to record profits for the Treasury, eclipsing earnings even at Exxon Mobil Corp., the nation’s most profitable publicly-traded company.
There is about $150 billion of private student debt, with new loans over the past few years carrying an average interest rate of 8 percent to 10 percent, according to the Consumer Financial Protection Bureau.
In recent years, student lenders have been able to generate increasing interest income off the loans they make relative to their own cost to borrow, something most banks are struggling with due to years of persistently low interest rates forcing them to reduce borrowers’ rates, the CFPB has noted.
The consumer agency has suggested that Washington policymakers consider government-initiated loan workout and refinancing schemes for distressed borrowers. A senior CFPB official, Rohit Chopra, is due to repeat that suggestion Tuesday during a Senate Banking Committee hearing.
Brown’s proposal, which he calls the “Refinancing Education Funding to Invest for the Future Act,” mandates that whatever means the treasury secretary uses to enable borrowers to refinance their debt, “it shall not result in any net cost to the federal government” -- a potential boon to lawmakers eager to curry favor with young voters and middle-class families but wary of increasing government spending.
The bill in some ways resembles a 2008 law, “Ensuring Continued Access to Student Loans Act,” which provided lenders with guarantees and cheap financing to stimulate new lending. Brown’s legislation seeks to help borrowers who are struggling with debt repayment.
“During the crisis, policymakers employed a number of creative tools to revive the student lending market,” Chopra said in prepared remarks he planned to deliver at Tuesday's hearing. “Policymakers might now focus on the following objectives to increase private capital participation and market efficiency: spurring loan restructuring opportunities [and] jumpstarting a student loan refinance market.”
Brown’s legislation targets both.
His bill calls on the treasury secretary to first determine whether borrowers “are unable to secure adequate credit accommodations with existing private education loans.” If the secretary makes such a determination, the official then would have the authority to create a scheme to help borrowers.
The proposed legislation suggests that policymakers consider using the Federal Reserve, Federal Home Loan Banks, and Federal Financing Bank -- a government corporation that borrows from the treasury and lends to agencies and borrowers with government guarantees -- as sources of credit to refinance borrowers.
The CFPB suggested a similar idea last month.
During the recent financial crisis, the Fed created numerous extraordinary programs designed to stimulate credit. The world’s largest financial institutions, particularly foreign-based banks, were the biggest beneficiaries, Fed data show.
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Much Progress To Report
"Fifty-one years ago, John F. Kennedy declared to this Chamber that 'the Constitution makes us not rivals for power but partners for progress…It is my task,' he said, 'to report the State of the Union – to improve it is the task of us all.' Tonight, thanks to the grit and determination of the American people, there is much progress to report."
The State Of The Union Is Stronger
"After a decade of grinding war, our brave men and women in uniform are coming home. After years of grueling recession, our businesses have created over six million new jobs. We buy more American cars than we have in five years, and less foreign oil than we have in twenty. Our housing market is healing, our stock market is rebounding, and consumers, patients, and homeowners enjoy stronger protections than ever before. Together, we have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger."
There Is Still More Work To Do
"Our economy is adding jobs – but too many people still can’t find full-time employment. Corporate profits have rocketed to all-time highs – but for more than a decade, wages and incomes have barely budged."
An Unfinished Task
"It is our unfinished task to restore the basic bargain that built this country – the idea that if you work hard and meet your responsibilities, you can get ahead, no matter where you come from, what you look like, or who you love. It is our unfinished task to make sure that this government works on behalf of the many, and not just the few; that it encourages free enterprise, rewards individual initiative, and opens the doors of opportunity to every child across this great nation."
Putting The Nation's Interests Before The Party
"The American people don’t expect government to solve every problem. They don’t expect those of us in this chamber to agree on every issue. But they do expect us to put the nation’s interests before party. They do expect us to forge reasonable compromise where we can. For they know that America moves forward only when we do so together; and that the responsibility of improving this union remains the task of us all."
We Are More Than Halfway Towards Our Goal
"Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances."
We Can't Grow By Shifting Costs
"We won’t grow the middle class simply by shifting the cost of health care or college onto families that are already struggling, or by forcing communities to lay off more teachers, cops, and firefighters. Most Americans – Democrats, Republicans, and Independents – understand that we can’t just cut our way to prosperity. They know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share. And that’s the approach I offer tonight."
Keeping Our Promises On Medicare
"On Medicare, I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission. Already, the Affordable Care Act is helping to slow the growth of health care costs. The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive. And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep – but we must keep the promises we’ve already made."
Loopholes Must Go
"To hit the rest of our deficit reduction target, we should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and well-connected. After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks? How is that fair? How does that promote growth?"
Bipartisan Tax Reform
"Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit. The American people deserve a tax code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring; a tax code that ensures billionaires with high-powered accountants can’t pay a lower rate than their hard-working secretaries; a tax code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that create jobs right here in America. That’s what tax reform can deliver. That’s what we can do together."
One Manufactured Crisis After The Next
"So let’s set party interests aside, and work to pass a budget that replaces reckless cuts with smart savings and wise investments in our future. And let’s do it without the brinksmanship that stresses consumers and scares off investors. The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next. Let’s agree, right here, right now, to keep the people’s government open, pay our bills on time, and always uphold the full faith and credit of the United States of America. The American people have worked too hard, for too long, rebuilding from one crisis to see their elected officials cause another."
"But let’s be clear: deficit reduction alone is not an economic plan. A growing economy that creates good, middle-class jobs – that must be the North Star that guides our efforts. Every day, we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?"
Not A Bigger Government, A Smarter Government
"Tonight, I’ll lay out additional proposals that are fully paid for and fully consistent with the budget framework both parties agreed to just 18 months ago. Let me repeat – nothing I’m proposing tonight should increase our deficit by a single dime. It’s not a bigger government we need, but a smarter government that sets priorities and invests in broad-based growth."
Magnet For New Jobs: Manufacturing
"Our first priority is making America a magnet for new jobs and manufacturing. After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again."
Made In America
"Last year, we created our first manufacturing innovation institute in Youngstown, Ohio. A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything. There’s no reason this can’t happen in other towns. So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of fifteen of these hubs and guarantee that the next revolution in manufacturing is Made in America."
The Best Ideas
"If we want to make the best products, we also have to invest in the best ideas ... Now is not the time to gut these job-creating investments in science and innovation. Now is the time to reach a level of research and development not seen since the height of the Space Race. And today, no area holds more promise than our investments in American energy."
"We produce more oil at home than we have in 15 years. We have doubled the distance our cars will go on a gallon of gas, and the amount of renewable energy we generate from sources like wind and solar – with tens of thousands of good, American jobs to show for it. We produce more natural gas than ever before – and nearly everyone’s energy bill is lower because of it. And over the last four years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen."
We Must Act Now Before It's Too Late
"But for the sake of our children and our future, we must do more to combat climate change. Yes, it’s true that no single event makes a trend. But the fact is, the 12 hottest years on record have all come in the last 15. Heat waves, droughts, wildfires, and floods – all are now more frequent and intense. We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence. Or we can choose to believe in the overwhelming judgment of science – and act before it’s too late."
If Congress Won't Act, I Will
"I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago. But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy."
"Fix It First"
"Tonight, I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country. And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children. Let’s prove that there is no better place to do business than the United States of America. And let’s start right away."
Cutting Our Waste In Half
"If a non-partisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long. I’m also issuing a new goal for America: let’s cut in half the energy wasted by our homes and businesses over the next twenty years. The states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen."
Send Me That Bill!
"Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill. Right now, overlapping regulations keep responsible young families from buying their first home. What’s holding us back? Let’s streamline the process, and help our economy grow."
Access To Education
"Most middle-class parents can’t afford a few hundred bucks a week for private preschool. And for poor kids who need help the most, this lack of access to preschool education can shadow them for the rest of their lives. Tonight, I propose working with states to make high-quality preschool available to every child in America. Every dollar we invest in high-quality early education can save more than seven dollars later on – by boosting graduation rates, reducing teen pregnancy, even reducing violent crime."
High School Partnerships With College
"Tonight, I’m announcing a new challenge to redesign America’s high schools so they better equip graduates for the demands of a high-tech economy. We’ll reward schools that develop new partnerships with colleges and employers, and create classes that focus on science, technology, engineering, and math – the skills today’s employers are looking for to fill jobs right now and in the future."
"Through tax credits, grants, and better loans, we have made college more affordable for millions of students and families over the last few years. But taxpayers cannot continue to subsidize the soaring cost of higher education. Colleges must do their part to keep costs down, and it’s our job to make sure they do. Tonight, I ask Congress to change the Higher Education Act, so that affordability and value are included in determining which colleges receive certain types of federal aid. And tomorrow, my Administration will release a new “College Scorecard” that parents and students can use to compare schools based on a simple criteria: where you can get the most bang for your educational buck."
Real Immigration Reform
"Real reform means establishing a responsible pathway to earned citizenship – a path that includes passing a background check, paying taxes and a meaningful penalty, learning English, and going to the back of the line behind the folks trying to come here legally. And real reform means fixing the legal immigration system to cut waiting periods, reduce bureaucracy, and attract the highly-skilled entrepreneurs and engineers that will help create jobs and grow our economy."
Violence Against Women Act
"We know our economy is stronger when our wives, mothers, and daughters can live their lives free from discrimination in the workplace, and free from the fear of domestic violence. Today, the Senate passed the Violence Against Women Act that Joe Biden originally wrote almost 20 years ago. I urge the House to do the same. And I ask this Congress to declare that women should earn a living equal to their efforts, and finally pass the Paycheck Fairness Act this year."
"So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on. Tonight, let’s also recognize that there are communities in this country where no matter how hard you work, it’s virtually impossible to get ahead. Factory towns decimated from years of plants packing up. Inescapable pockets of poverty, urban and rural, where young adults are still fighting for their first job. America is not a place where chance of birth or circumstance should decide our destiny. And that is why we need to build new ladders of opportunity into the middle class for all who are willing to climb them."
Put America Back To Work
"Let’s offer incentives to companies that hire Americans who’ve got what it takes to fill that job opening, but have been out of work so long that no one will give them a chance. Let’s put people back to work rebuilding vacant homes in run-down neighborhoods. And this year, my Administration will begin to partner with 20 of the hardest-hit towns in America to get these communities back on their feet. We’ll work with local leaders to target resources at public safety, education, and housing. We’ll give new tax credits to businesses that hire and invest. And we’ll work to strengthen families by removing the financial deterrents to marriage for low-income couples, and doing more to encourage fatherhood – because what makes you a man isn’t the ability to conceive a child; it’s having the courage to raise one."
34,000 Troops Are Coming Home
"Tonight, I can announce that over the next year, another 34,000 American troops will come home from Afghanistan. This drawdown will continue. And by the end of next year, our war in Afghanistan will be over. Beyond 2014, America’s commitment to a unified and sovereign Afghanistan will endure, but the nature of our commitment will change. We are negotiating an agreement with the Afghan government that focuses on two missions: training and equipping Afghan forces so that the country does not again slip into chaos, and counter-terrorism efforts that allow us to pursue the remnants of al Qaeda and their affiliates."
Now Is The Time For Diplomatic Solutions
"America will continue to lead the effort to prevent the spread of the world’s most dangerous weapons. The regime in North Korea must know that they will only achieve security and prosperity by meeting their international obligations. Provocations of the sort we saw last night will only isolate them further, as we stand by our allies, strengthen our own missile defense, and lead the world in taking firm action in response to these threats. Likewise, the leaders of Iran must recognize that now is the time for a diplomatic solution, because a coalition stands united in demanding that they meet their obligations, and we will do what is necessary to prevent them from getting a nuclear weapon."
Willingness To Lead
"At the same time, we will engage Russia to seek further reductions in our nuclear arsenals, and continue leading the global effort to secure nuclear materials that could fall into the wrong hands – because our ability to influence others depends on our willingness to lead."
Addressing Cyber Attacks
"America must also face the rapidly growing threat from cyber-attacks. We know hackers steal people’s identities and infiltrate private e-mail. We know foreign countries and companies swipe our corporate secrets. Now our enemies are also seeking the ability to sabotage our power grid, our financial institutions, and our air traffic control systems. We cannot look back years from now and wonder why we did nothing in the face of real threats to our security and our economy. That’s why, earlier today, I signed a new executive order that will strengthen our cyber defenses by increasing information sharing, and developing standards to protect our national security, our jobs, and our privacy. Now, Congress must act as well, by passing legislation to give our government a greater capacity to secure our networks and deter attacks."
AIDS Free Generation
"We also know that progress in the most impoverished parts of our world enriches us all. In many places, people live on little more than a dollar a day. So the United States will join with our allies to eradicate such extreme poverty in the next two decades: by connecting more people to the global economy and empowering women; by giving our young and brightest minds new opportunities to serve and helping communities to feed, power, and educate themselves; by saving the world’s children from preventable deaths; and by realizing the promise of an AIDS-free generation."
"In defense of freedom, we will remain the anchor of strong alliances from the Americas to Africa; from Europe to Asia. In the Middle East, we will stand with citizens as they demand their universal rights, and support stable transitions to democracy. The process will be messy, and we cannot presume to dictate the course of change in countries like Egypt; but we can – and will – insist on respect for the fundamental rights of all people. We will keep the pressure on a Syrian regime that has murdered its own people, and support opposition leaders that respect the rights of every Syrian. And we will stand steadfast with Israel in pursuit of security and a lasting peace. These are the messages I will deliver when I travel to the Middle East next month."
Caring For Our Veterans
"We will keep faith with our veterans – investing in world-class care, including mental health care, for our wounded warriors; supporting our military families; and giving our veterans the benefits, education, and job opportunities they have earned. And I want to thank my wife Michelle and Dr. Jill Biden for their continued dedication to serving our military families as well as they serve us."
The Right To Vote
"We must all do our part to make sure our God-given rights are protected here at home. That includes our most fundamental right as citizens: the right to vote. When any Americans – no matter where they live or what their party – are denied that right simply because they can’t wait for five, six, seven hours just to cast their ballot, we are betraying our ideals. That’s why, tonight, I’m announcing a non-partisan commission to improve the voting experience in America. And I’m asking two long-time experts in the field, who’ve recently served as the top attorneys for my campaign and for Governor Romney’s campaign, to lead it. We can fix this, and we will. The American people demand it. And so does our democracy."
For Our Children
Of course, what I’ve said tonight matters little if we don’t come together to protect our most precious resource – our children. It has been two months since Newtown. I know this is not the first time this country has debated how to reduce gun violence. But this time is different. Overwhelming majorities of Americans – Americans who believe in the 2nd Amendment – have come together around commonsense reform – like background checks that will make it harder for criminals to get their hands on a gun. Senators of both parties are working together on tough new laws to prevent anyone from buying guns for resale to criminals. Police chiefs are asking our help to get weapons of war and massive ammunition magazines off our streets, because they are tired of being outgunned. (Pictured: gun violence victim, Hadiya Pendleton / AP photo)
They Deserve A Vote
"Each of these proposals deserves a vote in Congress. If you want to vote no, that’s your choice. But these proposals deserve a vote. Because in the two months since Newtown, more than a thousand birthdays, graduations, and anniversaries have been stolen from our lives by a bullet from a gun ... Hadiya’s parents, Nate and Cleo, are in this chamber tonight, along with more than two dozen Americans whose lives have been torn apart by gun violence. They deserve a vote. Gabby Giffords deserves a vote. The families of Newtown deserve a vote. The families of Aurora deserve a vote. The families of Oak Creek, and Tucson, and Blacksburg, and the countless other communities ripped open by gun violence – they deserve a simple vote."
That's Just The Way We're Made
"We should follow the example of a North Miami woman named Desiline Victor. When she arrived at her polling place, she was told the wait to vote might be six hours. And as time ticked by, her concern was not with her tired body or aching feet, but whether folks like her would get to have their say. Hour after hour, a throng of people stayed in line in support of her. Because Desiline is 102 years old. And they erupted in cheers when she finally put on a sticker that read 'I Voted.' We should follow the example of a police officer named Brian Murphy. When a gunman opened fire on a Sikh temple in Wisconsin, and Brian was the first to arrive, he did not consider his own safety. He fought back until help arrived, and ordered his fellow officers to protect the safety of the Americans worshiping inside – even as he lay bleeding from twelve bullet wounds. When asked how he did that, Brian said, 'That’s just the way we’re made.'"
We Are Citizens
"We may do different jobs, and wear different uniforms, and hold different views than the person beside us. But as Americans, we all share the same proud title: We are citizens. It’s a word that doesn’t just describe our nationality or legal status. It describes the way we’re made. It describes what we believe. It captures the enduring idea that this country only works when we accept certain obligations to one another and to future generations; that our rights are wrapped up in the rights of others; and that well into our third century as a nation, it remains the task of us all, as citizens of these United States, to be the authors of the next great chapter in our American story. Thank you, God bless you, and God bless the United States of America."