BURLINGTON — Rep. Peter Welch is proposing raising taxes on the rich to allow student loan borrowers to refinance at lower interest rates.
Welch, a Democrat and Vermont’s sole member in the U.S. House of Representatives, visited the University of Vermont on Wednesday to discuss a bill that would allow the holders of undergraduate loans to refinance at an interest rate of 3.86 percent.
“We all know — Republicans, Democrats and independents — that the future of this country depends on having the best educational system in the world, and that students can’t get ahead unless they get an education and the country can’t get ahead unless it educates its students,” Welch said.
In 1965, the federal government began offering financial aid, with 60 percent of aid coming in the form of grants and scholarships and the remainder coming in the form of loans. Today, 70 percent of federal student aid comes in the form of loans, which — according to the Congressional Budget Office — generates $50 billion in revenue for the federal government annually.
Nationwide, student debt totals $1.2 trillion; in Vermont, that amount is $2.5 billion, with 65 percent of college graduates leaving college with a student loan debt of more than $28,000.
Welch argued theses heavy debt loads are a drag on the economy.
“It means they can’t put a down payment on a home. It’s tough for them to buy a car, and all of that holds back the economy,” Welch said.
Scott Giles, president of the Vermont Student Assistance Corp., said that under the proposed legislation, a student who borrowed $30,000 with a 10-year term would save a little less than $5,000 in interest.
A student who borrowed the same amount of money with a 30-year term — which Giles said is becoming increasingly common — would save approximately $20,000 in interest during the life of the loan.
“These are really meaningful savings for Vermonters and their families,” Giles said.
Bethany Scalzo, 24, a Montpelier resident who received her undergraduate and graduate degrees from Loyola University Maryland, has $60,000 in loans with interest rates ranging from 5 percent to 7.7 percent.
This summer, Scalzo began repaying her loan: $700 a month for the next 10 years.
“Because of this debt, there are a number of things I cannot pursue, including my Ph.D,” Scalzo said. “On a small scale, I am not able to go out to dinner after work. I am not able to make my own car payments.”
The reduction in student loan interest rates would cost the federal government approximately $51 billion in revenue over the course of 10 years, but Welch’s legislation proposes covering that money — and then some — by introducing into the U.S. tax code the “Buffett Rule,” named after billionaire investor Warren Buffett.
The Buffett Rule would set the income tax rate for those making more than $1 million a year at 30 percent, which would generate $72 billion in revenue during the next 10 years.
Welch said there is “enormous” support for this idea in the Senate, where Sen. Elizabeth Warren (D-Mass.) has proposed similar legislation. But, he also acknowledged that a tax hike on the rich will be a difficult thing to make a reality as members of Congress are looking at elections in November.
“It’s an ongoing battle, and it’s uphill these days in D.C.,” Welch said. “If corporations can refinance and save money and homeowners can refinance and save money, than why not students and parents?”
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