Following last week's report showing student loan debt has reached more than $1 trillion, U.S. Sen. Sherrod Brown (D-OH) and U.S. Sen. Heidi Heitkamp (D-ND) announced a plan that would help Americans saddled with costly, private student loans refinance to more affordable options. Following a Senate Banking Committee hearing, Brown and Heitkamp introduced legislation that would help individuals reduce their student loan debt by refinancing at no cost to taxpayers. U.S. Sens. Dick Durbin (D-IL) and Patty Murray (D-WA) are also original cosponsors of the legislation.
"Why should our students and graduates be the last to benefit from historically low interest rates? Helping graduates refinance their private student loan debt into more affordable terms frees up funds for them to buy houses, start businesses, or contribute to their communities. It makes sense for our students and graduates and it makes sense for our economy," Brown said. "Too many Ohioans are still paying for college decades after they graduate -- through private loans with high interest rates. My bill would allow borrowers to refinance their costly private loans into more affordable loans. These borrowers could see their interest rates cut in half, lowering their payments at no cost to taxpayers."
"I have heard from countless students who are trapped because of an overwhelming amount of private student loan debt. This does not only impact them, it is a drain on our entire economy. The bill I wrote will incentivize refinancing, allowing students to benefit from incredibly low interest rates," Heitkamp said.
"I am proud to join my colleagues in co-sponsoring this commonsense legislation that would help people across the country refinance their high-interest private student loans and reduce their payments," Murray said. "At a time when student loan debt stands at over $1 trillion and borrowers struggle to climb the economic ladder, we need to do everything we can to ensure higher education remains affordable for every American."
Last year, outstanding student loan debt reached more than $1 trillion and 81 percent of the undergraduates with high student debt had private loans. This excessive student loan debt dampens home purchases, slows small business startups, diverts retirement savings, and limits opportunities for economic expansion in rural communities. Private loans typically have higher interest rates -- that can top 18 percent -- and are more difficult to refinance and offer fewer payment options than loans administered by the U.S. Department of Education.
Many students turn to private loans because federal loan limits do not meet their need. Until 2008, the federal loan limits for undergraduate borrowers was $23,000 over the course of a student's education. While Congress has increased the cap to $31,000, the average cost of tuition, fees and room and board was $14,133 per year for 2007-2008 for a public, four-year college. At private institutions, tuition and fees alone averaged nearly $24,000 per year.
Specifically, the Refinancing Education Funding to Invest (REFI) for the Future Act would:
Authorize the Department of the Treasury to find creative solutions that will eliminate inefficiencies in the private student loan market and accommodate reasonable refinancing opportunities for private student loan borrowers.
Encourage greater competition, innovation, and participation of private capital in a currently stagnant private student loan refinancing market, including:
Require regular reporting and oversight
Expire no later than five years after enactment.
Create opportunities for private student loan borrowers to take advantage of the current low interest rates will ensure that borrowers pay rates that reflect their credit risk so that they may pursue economically productive activities like buying a home or starting a small business.