SACRAMENTO (CN) — A California state senator Tuesday introduced a $25 million plan that would give incentives to private banks to refinance college loans that have become a “crushing burden” on young graduates.
Sponsored by State Treasurer John Chiang, Senate Bill 674 would provide a security blanket to lenders to encourage them to negotiate Californians’ high-interest student loans. The state would repay lenders up to 10 percent of the loan balance if the borrower defaults. The bill was introduced by state Sen. Ben Allen, D-Redondo Beach.
The program would be open to employed California residents who have completed an associate, bachelor’s, graduate or technical degree and are current on their loans. Unemployed graduates and college dropouts would not qualify for state assistance.
“Student loan debt is a toxin to the American dream. It prevents people from buying a home, starting a business or saving for retirement,” Chiang said in a statement. “College graduation is supposed to be synonymous with opportunity and prosperity and not a detour into a modern-day debtor’s prison.”
Americans owe $1.4 trillion in student loans, according to the website studentloanhero.com. That’s $620 billion more than the nation’s total credit card debt. Forty-four million Americans have some student loan debt, and the average Class of 2016 graduate owed $37,172 in student loans, up 6 percent from the previous year, according to the website. Roughly 11 percent of borrowers are 90 days or more behind on their payments.
Allen’s proposal is the latest effort by California Democrats to make higher education more affordable. Democrats have proposed a new 1 percent tax on millionaires and a “Degrees Not Debt” budget bill that would divert $1.5 billion a year to create new scholarships at the state’s 33 public universities.
Service Employees International Union member Tara Chandler, of Los Angeles County, said high interest private loans have her “stuck living paycheck to paycheck.” The average cost to attend a California public university is more than $20,000 a year and trustees are planning to raise tuition for the first time in six years.
“Obtaining the education we need should not require us to be trapped in long-term economic hardship,” Chandler said in a statement.
The SEIU joined state Sen. Allen to lead the campaign for the bill. Allen called the Loan Improvement for Enhanced Futures Act a “win for our economy.” It is set for a hearing next week in the Senate Banking and Financial Institutions Committee; passage requires a two-thirds majority in each statehouse.
If approved, the new spending plan could be vetoed by Gov. Jerry Brown, who has routinely nixed new spending during his fourth and final term. In his latest budget proposal, Brown proposed phasing out the Middle Class Scholarship program that his own party hopes to extend.