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Sen. Elizabeth Warren (D-MA) laid out a new plan to dramatically lower the federal student loan interest rate on Thursday by using the introduction of the so-called Buffet rule to finance the change.
Delivering the keynote address at the Higher Ed Not Debt Campaign launch event at the Center For American Progress, Warren argued that America faces a choice: “Do we invest in students, or millionaires?” Warren plans to introduce a bill that would create an “America that invests in those who get an education” by revising the tax code and enacting the Buffet rule. Watch it:
The Buffet rule is named after billionaire Warren Buffet and would establish a minimum tax on income in excess of $1 million. The measure, which never got out of Congress, raises approximately $50 billion in revenue and ensures that millionaires do not pay lower tax rates than middle-class families.
Congress acted to lower the federal unsubsidized student loan interest rate to 3.86 percentfor the 2012-2013 academic school year. But unless it acts again, the rate will increase back to its original 6.8 percent for the next school year.
Warren’s plan would maintain the 3.86 percent rate for the federal unsubsidized student loan. The cost of the change would be covered by a “dollar for dollar” effort where for “every dollar the Buffet rule brings in, we use that dollar to refinance student loan debt,” she explained. She estimated that recent graduates who borrowed the maximum in undergraduate loans could see their payments drop by $1,000 a year and total interest paid over the life of the loan could be cut nearly in half. Students with graduate loans or borrowers from private lenders would save even more, Warren projected.
If the Buffet rule exceeds its expected revenue, then the plan would call for lowering the interest rates even further. These rates would not be restricted to current students either; all college graduates still repaying federal student loans would have the option to refinance to a lower rate, saving graduates thousands of dollars per year.