U.S. Senator Tammy Baldwin has joined a group of her Democratic Senate colleagues to put forward a commonsense bill that prevents student loan interest rates from doubling on July 1.
"Wisconsin families and students cannot afford to have student loan interests rates double. This is a common sense solution that is built on fairness. By closing a special interest tax loophole we can ensure college affordability and strengthen the economic security of Wisconsin families and students," Baldwin said.
Unless Congress acts before next Monday, student loan interest rates will double for 163,000 Wisconsin students. The Keep Student Loans Affordable Act of 2013 would maintain interest rates on subsidized federal Stafford loans rather than allow them to double on July 1. The proposal is fully paid for by closing a wasteful tax loophole and saves taxpayers approximately $4.6 billion over ten years.
Despite attempts to forge a bipartisan agreement on comprehensive student loan legislation, Republicans continue insisting on plans that would ultimately be even more costly to students than allowing rates to double. Unlike proposals that would balance the budget on the backs of students by making future loans much more costly, the Baldwin-backed solution will help ensure that college remains within reach for students who rely on federal loans to pay for their education.
The Keep Student Loans Affordable Act secures low interest rates for Wisconsin students and families. The legislation would extend and fully pay for an additional year of the current 3.4 percent interest rate on subsidized Federal Direct Stafford Loans. Once enacted, this legislation would set the interest rate at 3.4 percent for any subsidized Stafford loan made between July 1, 2013 and June 30, 2014. Without Congressional Action, need-based student loan interest rates will double on July 1st, meaning students will pay an additional $1000 for each loan.
The bill is fully paid for by closing a wasteful tax loophole for tax-deferred accounts. Under current law, holders of IRAs and 401(k)-type accounts are required 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 many years if they leave their account to a very young beneficiary. When the account holder dies, the taxation of the account is then delayed as it is spread over the life of the beneficiary. The Keep Student Loans Affordable Act of 2013 would require the retirement savings accounts to be distributed within five years of the death of the account holder, unless the beneficiary is within ten years of 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.
Throughout her time in the House of Representatives, Senator Baldwin advocated for investments in public education to ensure all students had the skills necessary to succeed. Baldwin supported student loan reform to make college financing more accessible and affordable, voted in favor of reauthorizing the Higher Education Act and doubling the maximum number of Pell Grants, and supported the Student Aid and Fiscal Responsibility Act in 2009, which overhauled the federal student loan program and redirected funds to Pell Grants and career training. In 2011, Baldwin supported the President's actions to ease the burden of student loan debt for recent graduates.