By Brad O’Neil
Student loans – many of us have them, few of us like to think about them. They got us through our college years and made attaining a degree possible but they also occupy a place of perpetual worry as we struggle to buy homes and start families while making loan payments that are often one of our largest monthly expenses.
According to Generation Progress, the average debt of a 2013 bachelor’s degree recipient was $28,400. In Michigan, over 1.5 million people have student loan debt totaling over $40 billion. Unlike car loans, home mortgages and almost any other form of debt, however, it’s currently not possible to refinance federal student loans to take advantage of lower interest rates.
In 2013, President Obama signed the Bipartisan Student Loan Certainty Act that lowered interest rates for federally subsidized Stafford loans, graduate loans, and PLUS loans to 3.86 percent, 5.41 percent, and 6.41 percent, respectively. But those who took out student loans prior to that period are stuck paying a higher rate.
Considering the high student loan default rate (13.7 percent), especially for those who completed their degrees during the Great Recession, not being able to refinance student loan debt simply doesn’t make any sense.
Senator Elizabeth Warren, a prominent voice on financial matters, has twice introduced the Bank on Students Emergency Loan Refinancing Act that would allow student loan debtors to refinance their loans at the interest rate for new borrowers. Unfortunately, her most recent effort doesn’t look any more promising than the last.
Passing refinancing legislation would not only benefit borrowers, it would drive our economy forward as well. According to a report by the Congressional Budget Office, passing legislation similar to Sen. Warren’s would help 25 million borrows save an average of $2,000 over the life of their loan while reducing the deficit by $14 billion during the period 2015-2024.
Borrowers already face enough financial burdens when they graduate, unnecessarily high interest rates don’t need to be another. If we really want our young people to invest in an education and contribute meaningfully to society then we need to start rewarding them for that investment. Passing refinancing legislation is a step in that direction.