NEW YORK (MainStreet) — Students who were in the market for federal loans last year got a blow when rates on Stafford loans set to double from 3.4% to 6.8% were capped at 3.85%. The rate on these loans, which are tied to the 10-year Treasury bill, are going to eventually rise in a spiking rate environment.

But what about people who took out student loans years before when rates were much higher? They have limited to no refinancing options. Senator Elizabeth Warren wants to change that.

Also See: Student Loan Bill from Sen. Elizabeth Warren Gains Traction

The Massachusetts Democrat announced plans to file a bill today that would allow millions of people saddled with federal loans of a decade ago to refinance them at the same rate that new undergraduate borrowers get — 3.85%.

Democratic Congressmen George Miller of California and John Tierney of Massachusetts have companion bills to introduce in the House.

Both federal and private student loan debt runs more than $1.2 trillion, roughly 8% of the gross domestic product. Federal student loans alone top out at around $1 trillion.

"This is an economic emergency, and we can't ignore it any longer," Warren said.

Some of Warren's progressive constituents, ranging from think tank policy wonks to blue collar trade unionists have been urging Warren to bust a move on student loan refinance.

Also See: Student Loan Re-fi Bill? Wait Till Next (Fiscal) Year, At Least

Generation Progress, the youth wing of the Washington, D.C.-based Center for American Progress, kicked off the re-fi campaign in March, in response to what executive director Anne Johnson called an "increasingly dysfunctional system of higher education."

Warren has taken the position that the Department of Education has itself been behaving like a for-profit enterprise rather than a federal agency.

"The federal student loan program makes this problem worse," she said, citing the billions of dollars the government takes in on student loans. The size of ED's profit margin--and the notion the ED can be said to profit from student loans in any literal sense--has been disputed by some and embraced by others.

Who pays for this? Warren wants money for a refinancing program to come from a tax increase on wealthy Americans under the so-called Buffet Rule, which would impose a new minimum tax rate on personal incomes in excess of $1 million.

The Warren plan faces an uphill fight in the Republican-dominated Congress, even if it is supported by many Republican voters.

--Written by John Sandman for MainStreet