Following last week’s report showing that Ohio students who graduate with student loans hold an average debt of nearly $30,000, U.S. Sen. Sherrod Brown (D-OH) will outline a plan that would help Americans saddled with costly, private student loans refinance to more affordable options. During a news conference call today, Brown discussed how his bill would help individuals reduce their student loan debt by refinancing at no cost to taxpayers. Brown was joined on the call by Lynsay Spratlen, a Summit County resident and graduate of Ashland University, who was forced to rely on private student loans which have hampered her career prospects and housing options.
“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.”
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. The current federal loan limit for undergraduate students is $31,000.
“The burden of the ‘debt for diploma’ system makes it harder for students to get ahead as they struggle to repay their loans. Student debt also negatively impacts the overall economy, as those with high levels of debt often must delay home purchases, pay higher mortgage rates and put off retirement savings; actions which ultimately lead, through a ripple effect, to a considerable wealth loss over a lifetime,” says Robert Hiltonsmith, Demos Policy Analyst and author of a series of upcoming Demos reports quantifying the cumulative wealth effects of private and public student loans.”Private student lending is particularly problematic because these high-interest, adjustable, market-determined loans are more likely to be borrowed by economically disadvantaged students and those attending for-profit institutions. And at an average interest rate of 10%, more than double the federal rate, many of these students need relief to avoid having these loans torpedo their financial futures.”
Specifically, the Refinancing Education Funding to Invest (REFI) for the Future Act would:
- 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.
Brown is also turning up the pressure on his colleagues to block interest rates from doubling for more than 360,000 Ohio students who rely on subsidized Stafford loans. Unless Congress acts by July 1, 2013, interest rates will jump to 6.8 percent. Brown is inviting Ohio college students, graduates, and their families to tell him their student loan stories by visiting his website brown.senate.gov/CollegeLoanStories so Brown can share stories from Ohioans on the Senate floor.