Loan Refinancing Bill Offers New Hope For Students

Jane Yurechko

A fresh possibility for helping to solve the student loan crisis has emerged – in the form of Sen. Sherrod Brown’s (D-Ohio) Refinancing Education Funding to Invest for the Future Act. The main goal is to create opportunities for student loan borrowers to take advantage of current low interest rates and pay a rate that accurately reflects their credit risk.

Brown and Sen. Heidi Heitkamp (D-N.D.) announced the bill today after a Senate Banking Committee hearing. Sens. Richard Durbin (D-Ill.) and Patty Murray (D-Wash.) are also original cosponsors of the legislation. Brown’s proposal is similar to one championed by Sen. Kirsten Gillibrand (D-N.Y.), which would automatically refinance most government loans carrying interest rates above 4 percent to fixed, 4 percent loans.

About 75 percent of all new federal student loans carry interest rates of 6.8 percent or 7.9 percent. These rates have been fixed by Congress in the past, and they have yet to be updated to reflect our new low interest rate economic environment. Homeowners can benefit from the new fixed-rate mortgage interest rate that is now 3.9 percent. As stated by Sen. Brown, “Why should our students and graduates be the last to benefit from historically low interest rates?”

In addition, Brown’s plan contains one important component to convince Republicans in the Senate to support it. The proposal mandates that it must not cost the government any money.

Brown’s plan allows the Treasury Secretary to determine whether borrowers are unable to secure adequate credit accommodations with existing private education loans. If the secretary does make this determination, then he can move forward creating a scheme that would help borrowers. This would include creating a government-backed financing organization that would allow students to refinance new loans with lower interest rates. It also calls on the Treasury Department to create incentives for student lenders to restructure loans, so that students can get a fair deal. But the proposal demands that all this be done without resulting in any net cost to the federal government.

The Consumer Financial Protection Bureau proposed a similar idea last month, and Brown’s version has been supported by senior CFPB official Rohit Chopra.

The proposal also calls for greater competition, innovation, and participation of private capital in the private student loan refinancing market, but with regular reporting and oversight. The main goal is to create opportunities for student loan borrowers to take advantage of current low interest rates and pay a rate that is accurately reflective of their credit risk. Brown also suggests that policy makers consider using the Federal Reserve, Federal Home Loan Banks, and Federal Financing Bank as options for sources of credit to refinance borrowers.

As the dreaded July 1 deadline looms closer when Stafford Loan rates would double to 6.8 percent, there is finally a proposal that will help our students, as opposed to proposals that would saddle them with more debt.

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