The bill, a student loan measure that would allow refinancing of public and private college debt with the U.S. government at a lower rate, is likely headed for failure. Democrats want to pay for it with a tax increase, a nonstarter with most Republicans, who say it will hurt the economy and job growth.
But it’s a measure that Democrats believe will help raise enthusiasm among their base of voters, particularly young people who are struggling to pay off thousands of dollars in high-interest student loans.
Democrats plan to take up the bill in early June. It will follow a legislative agenda that has so far included measures to raise the minimum wage, equalize pay for men and women and extend federal unemployment benefits.
“The concept is at the core of our Fair Shot' agenda,” Sen. Chuck Schumer, the Senate's No. 3 Democrat, said Tuesday.
The price tag is not yet known, the New York Democrat said. They would pay for it by closing a tax loophole that would have all individuals earning more than $1 million annually to pay a tax rate of at least 30 percent.
The rule change would raise taxes for those who pay a maximum tax rate of 15 percent on long-term capital gains.
The tax change is known as the "Buffett Rule," named after billionaire businessman Warren Buffett, who once said the current tax code allows him to pay fewer taxes than his secretary.
The Buffett Rule polls extremely well. One Gallup poll show Americans favor it by a margin of 60 percent to 37 percent.
According the to the Joint Committee on Taxation, the Buffett Rule would produce nearly $47 billion in new revenue over the next decade, raised mostly from higher-income taxpayers.
Democrats say that would be used exclusively to lift the burden of crushing loan debt off the shoulders of college graduates.
Sen. Elizabeth Warren, D-Mass., said 71 percent of college graduates incur student loan debt and that overall student debt has increased by 70 percent.
“There's a real question here,” Warren said Tuesday at an event announcing the legislation. “Does Congress work for the rich and the powerful, for those who can hire an army of lobbyist or lawyers? Or does Congress work for the the rest of America?”
The bill would permit people to refinance their existing college loans, whether public or private, at a fixed rate of 3.86 percent.
While private banks can’t be forced to renegotiate loan rates, the legislation allows those with private student loans to refinance with the federal government at the lower rate. The government would then take on the new debt.
Democrats acknowledged the plan would lead to the U.S. government assuming even more student loan debt, but Schumer insisted that according to Democratic calculations, the measure would pay for itself and keep the Treasury from losing money on defaulted loans.
The bill bears some resemblance to a measure Senate lawmakers passed in July. That bill creates new loan terms for new student borrowers. It sets the rate at 3.86 percent for a year and then ties interest rates to the government’s borrowing rate, capping them at 8.25 percent for undergraduate loans.
Warren’s latest plan doesn’t exclude graduate loans, but their new rates she said, would be higher than for undergraduate borrowers. Warren did not specify the rate, although the July measure capped graduate loan rates at 9.5 percent.
According to the New America Foundation, a think tank, 40 percent of federal loans financed graduate and professional degrees.