There has been activity in Washington D.C. regarding student loans. More support for the Bank on Students Emergency Loan Refinancing Act has been garnered. This time, United States Senator Sherrod Brown, a Democrat from Ohio, announced his support for the legislation in Congress. This is just one step the government is taking in addressing the issue of student loan debt. The focus of this legislative act is to improve interest rates by allowing federal student loan refinancing. Currently, only private lenders allow borrowers to get a student loan refinance.
Today’s students are graduating with an average student loan debt of around $30,000, and this amount is projected to increase. In addition to rising costs, more Americans are defaulting on their loans each year. One of the main culprits behind the rising default rate is the interest rate.
Federal student loans utilize fixed interest rates, yet these interest rates are redefined every academic year. In short, 2016 graduates have a complete different set of interest rates compared to 2020 graduates. Federal interest rates lack a degree of flexibility compared to private lenders. If a borrower is having trouble with interest payments, there is little he or she can do to alleviate the burden of large payments.
This student loan refinancing act seeks to allow more flexibility and options when it comes to federal student loans such as Stafford and Parent PLUS loan options. In a nutshell, this act will let borrowers refinance their federal loans with new interest rates. The new interest rate will be taken from the current rates offered to students currently in college.
On paper, the act will decrease interest payments for millions of borrowers. While this solution may be viable, it still does not address the rising demand for and cost of higher education. Interest rates are just one issue of the entire picture of student loans; for instance, other issues such as tuition and underwriting processes directly affect the mounting debt.
At the end of the day, student loan refinancing is an excellent method for reducing interest rates and cutting down on interest payments. Other actions must be taken by governing bodies to decrease expenses elsewhere because the student loan issue has multiple contributing factors.