A bill to allow consumers to refinance their student loans to the rate currently being issued on new federal and private student loans succumbed to a painful death on the Senate floor Wednesday despite being championed by consumer advocates.

The Bank On Students Emergency Loan Refinancing Act, introduced in May by Sen. Elizabeth Warren, will not be moving on, Reuters reports.

“With this vote, we show the American people who we work for in the United States Senate: billionaires or students,” Warren said Wednesday.

According to Reuters the bill fell short of the 60 votes needed to end debate and move to a final vote.

The Act would have allowed federal and private student loan borrowers to refinance to rates set for first-time borrowers – approximately 3.86%.

That rate was set last summer by legislation that tied student loan interest rates to the yield rate on 10-year treasury bonds. While that change ensured that new borrowers are getting very accommodating interest rates, it didn’t do anything to deal with the more than 1 trillion dollars in student loan debt that is currently on the books for around 40 million Americans.

Consumer groups, including our colleagues at Consumers Union, urged legislators to pass the Act and save consumers billions of dollars.

Consumer Union senior policy counsel Pamela Banks and staff attorney Suzanne Martindale wrote a letter to Warren commending her efforts to help consumers and the economy as a whole.

“[The Act] will help borrowers pay down their loans faster and give them the chance to put the extra money they save each month toward purchases or investments that stimulate the economy,” they wrote.

Consumers Union estimates that approximately 40 million consumers currently have student loan debts totaling $1.2 trillion. The majority of outstanding student loans have interest rates fixed from the time they were taken out, and while market rates are historically low right now, at the time most were issued federal loan rates were at 6.8% or higher.

“Consumers with mortgages can refinance their loans, student loan borrowers deserve the same opportunity,” reads the statement from Consumers Union, which explains that the bill promotes “common sense solutions to the student debt crisis that will have a meaningful impact on the lives of millions.”

With one-in-three students loans considered delinquent and often affecting a student’s ability to make purchases in the future, the Act would have offered much needed reprieve for college students left with mountains of both federal and private student loans.

In order to refinance borrowers would have to be current on their loan payments and meet debt-to-income rations that would have been set by the Department of Education had the bill passed.

The bill encountered criticism early on when supporters were looking at how to finance such an endeavor. At the time the bill was introduced, Warren suggested funding could be found in the form of the estimated $66 million a GAO study found the government would make off federal student loans disbursed between 2007 and 2012.

“This is $66 billion on just the loans issued during that period. That is insane,” Warren told MassLive.com at the time. “This (bill) brings that down. Instead of taxing students who can’t afford to pay for college up front, it says we are investing in those students.”

In addition to refinancing student loans, the bill set forth a number of tax reforms intended to enact what is called the “Buffett Rule,” a reference to Warren Buffett’s statement that he shouldn’t pay lower taxes than his secretary.

The debt burden created by student loans seems to be at the forefront of legislators minds this year. In April, Sen. Sherrod Brown from Ohio gave new life to the 2013 Know Before You Owe Act, a bill that would require much fuller disclosures for private student loan terms and options.

Just this week, President Obama signed an executive order that expanded a federal loan forgiveness plan to 5 million additional consumers who borrowed before October 2007 or those who have not borrowed since October 2011. The Pay As You Earn program allows students who borrowed federal direct loans to cap their loan payments at 10% of their monthly incomes.

While the order could be considered a big win for consumers, as Consumerist reported in April the debt forgiven by government programs has added up more quickly than anticipated. At its current rate the Pay As You Earn plan is expected to reach $14 billion next year, exceeding government expectations by 90%.

U.S. student loan refinancing bill fails Senate hurdle [Reuters]

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