By Vicki Needham - 05/21/14 05:28 PM EDT
Senate Democrats and prominent economists on Wednesday ramped up efforts to grow support for a bill that would allow borrowers to refinance their student loan debt into lower interest rates.
Larry Summers, a former top White House economic adviser, said that student debt is a hurdle to economic growth that has held back a more robust housing recovery.
“That is driven by the overarching life-shaping imperative of managing student debts for too many young people."
He said the 2008 financial crisis was a lesson in the “pernicious and long-lasting effect of debt overhangs.”
"Overly indebted households are not in a position to spend and move forward," he said.
Student loan debt has grown to $1.2 trillion, which exceeds the amount of credit card debt held by Americans.
The push is part of Democratic messaging on student loans and minimum wage issues heading into the midterm elections.
“There was a time when student loans were an educational finance issue rather than a macroeconomic issue,” Summers said.
“That is no longer the case."
Joseph Stiglitz, a Nobel laureate in economics and professor at Columbia University, said he agreed with Summers take on the effects of student loan debt on the ability of many to get an education and its weight on the broader economy.
He pointed to the cut back in higher education funding after 2008 crisis that has made college more expensive while incomes have stagnated.
That combination of issues is making a college education nearly unattainable for middle- and lower-income families, he said.
“We have really an educational crisis in our country,” Stiglitz said.
“Student debt is not only affecting opportunity it’s affecting our potential future growth and it’s affecting our economic performance right now."
The rising cost of college has put many potential students in a bind where they have to choose between either the burden of debt or skipping a higher education, Stiglitz said.
“If you don’t get a college education your economic prospects are really bleak,” Stiglitz said.
“One of the most important public policy issues is how to make education affordable."
Sen. Cory Booker (D-N.J.) argued that student loan debt is inhibiting economic growth and that the housing market is suffering because graduating students are carrying too much debt to purchase a home.
"So there is urgency here," he said. "We have to ask ourselves as a nation, do we want to lead the globe in education?"
Booker said the United States should set the global example for college education and part of that is figuring out "how we can make sure we knock down all obstacles for the genius of our children to be nurtured in higher education."
A first step is allowing the refinancing of higher-rate loans.
"We have to make this a national mission," he said.
Sen. Al Franken (D-Minn.), who led the call, said the weight of debt can prohibit people from buying houses or starting a business.
“It’s terrible for our economy,” he said.
A recent study from the New York Federal Reserve showed that the average debt for a 25-year-old is $21,000. That debt load has contributed to one of the lowest rates of homeownership by young people.
The Senate bill, which is spearheaded by Sen. Elizabeth Warren (D-Mass.), would allow people with loans taken out before 2013 to refinance them at the 3.86 percent rate agreed to last year in a bipartisan measure.
Democrats are proposing to pay for the bill but nixing some tax breaks for millionaires, which is also known as the Buffett Rule.
Franken said Wednesday that senators are still waiting for a score from the Congressional Budget Office that would better show the number of borrowers who could be helped by the bill and the overall costs.