Student-loan debt in the U.S. now tops $1 trillion, and while interest rates are near historic lows, the debt from many student loans is carried at interest rates of 10 percent or more. Those with private student loans often find them difficult to refinance, and they’re a drag on the economy, leaving less money for those in debt to buy houses, start businesses and save for retirement.
On Tuesday, U.S. Sen. Sherrod Brown introduced legislation that would make it easier for people to refinance student loan debt. The Refinancing Education Funding to Invest (REFI) for the Future Act would ask three federal entities – the departments of Treasury and Education and the Consumer Financial Protection Bureau – to create incentives for lenders to restructure student loans. Co-sponsors include U.S. Sens. Heidi Heitkamp (D-N.D.), Dick Durbin (D-Ill.) and Patty Murray (D-Wash.).
“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 in a statement. “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.”
Brown’s bill deals with private loans, which typically have higher interest rates. The U.S. government also provides both subsidized and unsubsidized loans to students. The rates on government-subsidized Stafford loans are set to double on July 1, to 6.8 percent, unless Congress can reach a deal on the loans.
Federal loans are capped at $31,000, and many students turn to private loans to finish their educations. Brown and his colleagues are right to target this disparity between rates for student loans and for other consumer loans. Addressing this burden would do more than relieve those who hold the debt. By freeing up money that would otherwise go to pay higher interest rates, this reform could help the economy as a whole.