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September 27, 2016 Comments (0) Latest Education

Senate Bill Proposes 2 Year Freeze on Student Loan Interest Rates

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Both Republicans and Democrats will work hard to fix a flawed Federal student loan system as a July 1 deadline approaches that would see interest rates doubled from 3.4% to 6.8%. The rate was cut in half in 2008 as the recession hit and also the increase is a return to its previous level.

But the current interest product is problematic because the rates are fixed and not tied to the marketplace. It’s a hard balance for legislators to sort out a system that’s sensible and cost-effective without having to be too friendly or too punitive to borrowers, and there’s mutual understanding between Republicans, Democrats and also the President on solutions.

As the legislative efforts continue, an invoice has been introduced in the Senate to freeze rates of interest at 3.4% for 2 years as a solution is forged — but the funding to carry on high Federal subsidy for loan interest can come from :

The Education loan Affordability Act of 2013 (S. 953) would freeze need-based student loan interest rates for two years while Congress creates a long-term means to fix slow the rapid accumulation of student-loan debt, and is fully taken care of by closing three egregious tax loopholes.? Specifically, the balance would: limit using tax-deferred retirement accounts as a complicated estate planning tool; close a company offshore tax loophole by restricting \”earnings stripping\” by expatriated entities; and shut an gas and oil industry tax loophole by treating oil from tar sands just like other petroleum products.

Student loan debt, that has topped $1 trillion in the usa, is behond only mortgages for total consumer debt, having outpaced credit card debt and automotive loan debt. Research by FICO Labs demonstrated that the average student loan debt in 2005 was around $17,000, as well as in 2013 that number grew to in excess of $27,000 to have an increase of nearly 60% in 7 years.

The bill would also draw funding from closing a tax loophole in individual retirement accounts. As Sen. Patty Murphy’s (Democrat, Washington State) office explains:

Under current law, holders of IRAs and 401(k)-type accounts have to begin taking taxable distributions from those accounts once they reach age 70-1/2.? However, a loophole in the tax law allows taxpayers to stretch those distributions over a long time if they leave their account to some very young beneficiary.? Once the account holder dies, the taxation of the account will be delayed because it is spread within the life of the beneficiary.? A student Loan Affordability Act would require the retirement savings accounts to become distributed within 5 years of the death of the account holder, unless the beneficiary is within ten years from the account holder\’s age, an individual with special needs or disabled, a minor, or the account holder\’s spouse.? This provision saves taxpayers approximately $4.6 billion over ten years.

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