Elizabeth Warren’s bill to refinance student loans dies in the Senate. Now what?


Sen. Elizabeth Warren (D-Ma.) speaking in favor of her loan proposal. (AP)

Millions of Americans saddled with high interest on their student loans just lost a chance to have the rate lowered as Senate Republicans shot down on Wednesday legislation that would have let borrowers refinance their debt. But the fight ain't over.

"We're not giving up," Sen. Elizabeth Warren (D-Mass.), who championed the Bank on Students Emergency Loan Refinancing Act, said at a press conference Wednesday. "Homeowners are refinancing. Small businesses are refinancing. We just want young people who got an education to have their shot."

Warren failed to get the 60 votes needed to advance the legislation on Wednesday, with a 56-38 vote on the Senate floor. The bill would have let people with federal and private loans issued prior to 2010 refinance at 3.86 percent--the interest rate that Congress set for federal student loans a year ago.

The Obama administration estimated that the bill could have helped 25 million borrowers save $2,000 over the lifetime of their loans. The president touted the legislation on Monday when he signed an executive order to let people who took out federal loans before 2007 pay no more than 10 percent of their income in monthly payments.

Obama's move arrived amid growing concern from economists, realtors and bankers about how the country's record $1.2 trillion student loan debt load is hampering economic growth. According to the Federal Reserve Bank of New York, the average debt per borrower, hovering around $25,000, has increased by 70 percent between 2004 and 2012.

Despite the public outcry against mounting student debt, Warren's bill was a long shot. Republicans said the bill did nothing to reduce borrowing or lower education costs. They cast the legislation as a thinly veiled attempt by Democrats to burnish their populist credibility in an election year.

"The Senate Democrats' bill isn't really about students at all. It's really all about Senate Democrats," said Minority Leader Mitch McConnell (R-Ky), on the floor. "They want an issue to campaign on to save their own hides this November."

There was little chance that the GOP would back a bill that called for the creation of a new tax on millionaires to offset the cost of lowering interest rates. Warren said earlier in the month that Democrats were open to alternative plans to pay for the rate reduction, but her colleagues across the isle had none to offer.

In spite of Wednesday's set back, Warren said she plans to reintroduce the bill at some point, with hopes of gaining more bipartisan support. Three Republicans did vote to advance the bill to debate: Sens. Susan Collins of Maine, Bob Corker of Tennessee and Lisa Murkowski of Alaska.

At the very least, Warren's unrelenting campaign to ease the burden of student debt has kept the issue in play. But what of the millions of people struggling to meet their monthly payments? What options are open to them?

There are actually a few.

A growing number of financial institutions, including RBS Citizens and Discover, are rolling out refinance programs to reduce interest rates on student loans. At least a dozen other lenders, including Wells Fargo, already offer the service.

These programs work by consolidating private and federal loans into one new private loan at a lower rate, typically in exchange for a fee that's added to the loan balance. Besides the money that can be made off of these sorts of deals, lenders are banking on deepening their relationship with young, employed borrowers that may someday need a mortgage or a car loan.

It's unlikely, however, that many lenders will get on board with refinance programs because of the risk of attracting troubled borrowers who might default, said Mark Kantrowitz, senior vice president at Edvisors.com, which tracks student loans.

Another hurdle is the way student loans are packaged into securities and sold to investors. The terms of those deals often prohibit modifications of the loans that underpin the securities.

Borrowers with government-issued student loans can consolidate them, but the interest rate on the new loan would be a weighted average of the interest on each loan. In other words, if you have three loans with interest ranging from 6 percent to 8 percent, once they are consolidated, the rate could stand at 7 percent --not exactly a whopping reduction, but it's something.

Outside of the traditional financial services, there are start-ups, including Social Finance and CommonBond, that refinance private and federal student loans. CommonBond, for instance, sources capital from alumni investors to lower borrowing costs for graduates. Borrowers can refinance at a fixed interest rate of 5.99 percent over 10 years or 6.49 percent over 15-year loan. But for now the program is limited to graduates with MBA, law, engineering or medical degrees at fewer than 100 schools.

Danielle Douglas covers the banking industry for The Washington Post.
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments

Sen. Elizabeth Warren (D-Ma.) speaking in favor of her loan proposal. (AP)

Millions of Americans saddled with high interest on their student loans just lost a chance to have the rate lowered as Senate Republicans shot down on Wednesday legislation that would have let borrowers refinance their debt. But the fight ain't over.

"We're not giving up," Sen. Elizabeth Warren (D-Mass.), who championed the Bank on Students Emergency Loan Refinancing Act, said at a press conference Wednesday. "Homeowners are refinancing. Small businesses are refinancing. We just want young people who got an education to have their shot."

Warren failed to get the 60 votes needed to advance the legislation on Wednesday, with a 56-38 vote on the Senate floor. The bill would have let people with federal and private loans issued prior to 2010 refinance at 3.86 percent--the interest rate that Congress set for federal student loans a year ago.

The Obama administration estimated that the bill could have helped 25 million borrowers save $2,000 over the lifetime of their loans. The president touted the legislation on Monday when he signed an executive order to let people who took out federal loans before 2007 pay no more than 10 percent of their income in monthly payments.

Obama's move arrived amid growing concern from economists, realtors and bankers about how the country's record $1.2 trillion student loan debt load is hampering economic growth. According to the Federal Reserve Bank of New York, the average debt per borrower, hovering around $25,000, has increased by 70 percent between 2004 and 2012.

Despite the public outcry against mounting student debt, Warren's bill was a long shot. Republicans said the bill did nothing to reduce borrowing or lower education costs. They cast the legislation as a thinly veiled attempt by Democrats to burnish their populist credibility in an election year.

"The Senate Democrats' bill isn't really about students at all. It's really all about Senate Democrats," said Minority Leader Mitch McConnell (R-Ky), on the floor. "They want an issue to campaign on to save their own hides this November."

There was little chance that the GOP would back a bill that called for the creation of a new tax on millionaires to offset the cost of lowering interest rates. Warren said earlier in the month that Democrats were open to alternative plans to pay for the rate reduction, but her colleagues across the isle had none to offer.

In spite of Wednesday's set back, Warren said she plans to reintroduce the bill at some point, with hopes of gaining more bipartisan support. Three Republicans did vote to advance the bill to debate: Sens. Susan Collins of Maine, Bob Corker of Tennessee and Lisa Murkowski of Alaska.

At the very least, Warren's unrelenting campaign to ease the burden of student debt has kept the issue in play. But what of the millions of people struggling to meet their monthly payments? What options are open to them?

There are actually a few.

A growing number of financial institutions, including RBS Citizens and Discover, are rolling out refinance programs to reduce interest rates on student loans. At least a dozen other lenders, including Wells Fargo, already offer the service.

These programs work by consolidating private and federal loans into one new private loan at a lower rate, typically in exchange for a fee that's added to the loan balance. Besides the money that can be made off of these sorts of deals, lenders are banking on deepening their relationship with young, employed borrowers that may someday need a mortgage or a car loan.

It's unlikely, however, that many lenders will get on board with refinance programs because of the risk of attracting troubled borrowers who might default, said Mark Kantrowitz, senior vice president at Edvisors.com, which tracks student loans.

Another hurdle is the way student loans are packaged into securities and sold to investors. The terms of those deals often prohibit modifications of the loans that underpin the securities.

Borrowers with government-issued student loans can consolidate them, but the interest rate on the new loan would be a weighted average of the interest on each loan. In other words, if you have three loans with interest ranging from 6 percent to 8 percent, once they are consolidated, the rate could stand at 7 percent --not exactly a whopping reduction, but it's something.

Outside of the traditional financial services, there are start-ups, including Social Finance and CommonBond, that refinance private and federal student loans. CommonBond, for instance, sources capital from alumni investors to lower borrowing costs for graduates. Borrowers can refinance at a fixed interest rate of 5.99 percent over 10 years or 6.49 percent over 15-year loan. But for now the program is limited to graduates with MBA, law, engineering or medical degrees at fewer than 100 schools.

Danielle Douglas covers the banking industry for The Washington Post.
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Next Story
Matt O'Brien | June 11