A bill that would tackle student loan debt — a topic Congress has been unwilling to touch — was introduced Wednesday by two Democratic lawmakers. Whether it will gain support among Republicans remains unclear.
Authored by Sen. Dave Hansen, D-Green Bay, and Rep. Cory Mason, D-Racine, the so-called "Higher Ed, Lower Debt" bill would create a one-of-kind student loan refinancing authority to help current borrowers refinance their student loans.
“There have been promises from the other side of the aisle, from members of Joint Finance, that they would listen to all options to lower the tax burden on working class families,” said Mason, the ranking Democrat on the powerful budget-writing JFC. “If we can invest in bricks and mortar, we should be willing to invest in our state’s biggest asset (an educated workforce).”
Currently, students have limited options when applying for student loans and little to no ability to refinance. The loans can be consolidated, but that process doesn't involve shopping for a better deal from competing lenders. Interest rates are still high and the loans generally remain with the original lender. Student loans, unlike most other debts, are also immune from bankruptcy filings.
The Higher Ed, Lower Debt measure would provide an avenue for refinancing the loans with a method similar to home mortgage loans.
“Student loans are untouchable, unflexible,” said Sara Graves, 30, who graduated from UW-Eau Claire with $25,000 in student loan debt. The married mother of three works full time and is still paying off her loans. “We are not asking for a bailout. We are asking for more control over our finances.”
She's not alone.
Some 753,000 Wisconsin residents have federal student loan debt, according to the U.S. Federal Reserve System. This does not include those who secured private loans to pay for college.
On average, state residents with student loans (whether federal or not, and for both undergraduate and graduate degrees) owed $22,400 in late 2012, according to the U.S. Federal Reserve System. State borrowers who responded to an unrelated survey by the Institute for One Wisconsin said their average payment is $388 a month.
Mason said the student loan refinancing authority would be set up in a manner similar to the Wisconsin Economic Development Corp., created by Gov. Scott Walker in 2011. This would keep start-up costs low, he said, and favors a public-private operation pushed by Republicans in other areas.
But unlike problem-plagued WEDC that hands out loans to businesses, the student loan authority would be charged to create a system to buy loans — federal or private — and refinance them at a lower rate.
The Hansen-Mason bill would also allow the yearly amount paid in student loan debt to be written off as a state tax deduction. Currently, only the interest on the loans can be used as a tax write-off.
Estimates from the non-partisan Legislative Fiscal Bureau indicate the average Wisconsinite with student loan debt could see an income tax savings of roughly $172 under the bill. Those who take advantage of the ability to refinance their loans could see additional financial benefits.
For example, the average UW-Madison graduate leaves college $27,000 in debt. If a 6.8 percent interest rate on that loan amount was refinanced to 4 percent, the college graduate would save over $40 a month, or $500 a year.
“This would really have an impact on Wisconsin families... much more than $1 a month,” said Rep. Sandy Pasch, D-Whitefish Bay, taking a jab at a property tax relief plan unveiled last week by Walker that, if passed Thursday by the Assembly, will save property tax owners $13 on their 2013 bill.
Hansen said the money Wisconsin residents are spending on student loan debt could be spent on growing the economy.
“This is debt people have incurred for trying to do the right thing,” Hansen said. “These people are not deadbeats.”
Scot Ross, executive director of the liberal advocacy group One Wisconsin Now, said he made his last student loan payment when he turned 44 on June 14.
Ross and his staff have been researching the implications of student loan debt on the Wisconsin economy for the past two years.
Ross points out that with college graduates paying nearly $400 a month to pay back their loans, more used instead of new cars are being purchased and more college graduates are renting rather than buying homes.
According to a One Wisconsin Now survey of 2,700 state residents in 2011, 86 percent of renters with household incomes between $50,000 and $75,000 were paying off student loan debt.
“Today is the first day I can smile (about the crisis)” Ross said. “Somebody is finally doing something about it.”
This story has been amended to correctly report data from research on student loan debt.