Although it may be unreasonable for the states to take over all student loans, the good people of Wisconsin have had enough of the existing student debt cycle. A number of their State elected officials have put together a plan to refinance student loans and provide an annual tax deduction for Wisconsin residents paying off their loans. This proposed law is now making its way through the state legislature for bipartisan support before being formally introduced for a vote. While this plan may not work for every state, it does show that some State-level politicians are beginning to reject the same “business as usual” attitude from the Federal government when it comes to student loans.
The bill being pushed through the legislative process is titled the Higher Ed, Lower Debt Act. The authors; Senator Dave Hansen (D-Green Bay), Senator Chris Larson (D-Milwaukee) and Representative Cory Mason (D-Racine) called a press conference recently to provide details and discuss why they felt it was time to help their fellow state citizens and the local and state economies. They have quite a few reasons too.
Federal Debt Means Poorer States
According to a study put out by Project Student Debt, Wisconsin ranks at 10th place in terms of students graduating with loan debt. Sixty-seven percent of Wisconsin students graduating from a four-year school do so with an average of $22,400 in loans already hanging over their heads. This breaks out to a monthly payment of $338 for almost 19 years of repayment.
The sponsors of Higher Ed, Lower Debt stated at their press conference these numbers prevent recent graduates from making purchases that support local businesses and starting businesses of their own. “Instead of sending dollars out of this state off to Wall Street to pay down loans because we’ve made it impossible for students to refinance, let’s refinance those loans right here in Wisconsin and put those dollars back into Wisconsin’s economy,” was a primary concern of Rep. Mason.
Lower Rates And Tax Breaks
In order to get the refinancing started, this bill establishes a Student Loan Refinancing Authority to allow students with loan debt to refinance their federal loans at lower interest rates with the state. These rates could be much lower depending on the amount of the student loan according to Senator Hansen. As an example, a graduate from the University of Wisconsin with a debt of $27,000 and an interest rate of 6.8% would be able to get a lower rate of 4% from a lending institution working with the Authority. This translates into a savings of almost $500 per year.
Funding for the refinancing program will come from bond sales instead of tax monies. It provides more flexibility to the Authority as loan payments begin to roll in. This, along with possible loan defaults figured into the interest rate, removes most of the risk to taxpayers. The Authority will also be able to collect payments from borrowers and those in default under existing debt law.
To provide additional relief, Senator Larson and his co-authors have included an additional tax break for families currently dealing with student loans. Under the Higher Ed, Lower Debt Act, families would be able to deduct their payments from their Wisconsin State Income Tax. The State Legislative Fiscal Bureau has estimated the tax benefit for single filers could be up to $531 annually and $1,062 for married couples. It is this tax break and the bond funding for the Authority that the three Democrats hope will help them gain support from their Republican colleagues for the bill.
To increase consumer protection, all future private student loan debt will be tracked by the existing Department of Financial Institutions and the Higher Education Aid Board to help Wisconsin residents and state politicians better understand student loan requirements. This database will contain a system that ranks private lenders by interest rates and terms and will be available to anyone looking for the best student loan available for their needs.
If the Higher Ed, Lower Debt Act does pass, it will be the first major effort by the states to actually refinance and/or remove the burden of Federal Student Loan Debt from borrowers behind on their payments or those already in default. While it may not be the best solution for every state in the U.S. and may even change considerably in Wisconsin, it will certainly provide a system and program by which future efforts can be measured against.