The plan sponsored by Sen. Kirsten Gillibrand (D-N.Y.) would force the U.S. Secretary of Education to automatically refinance most government loans carrying interest rates above 4 percent into fixed, 4-percent loans. Roughly nine of 10 federally-backed loans would be affected, saving nearly 37 million borrowers billions of dollars in annual interest payments.
“At a time when corporations, homeowners and even local governments are refinancing at historically low interest rates and saving millions of dollars, students and families who take out loans to pay for college are getting left behind,” Gillibrand said. “Ensuring that our graduates are not saddled with unmanageable debt by keeping interest rates low is just common sense.”
Holders of federal student loans haven’t seen a drop in their interest rates even as other borrowing costs have fallen. Many loans have interest rates of 6.8 or 7.9 percent, while the interest rate for the average 30-year, fixed-rate mortgage is 3.5 percent.
And as Sen. Elizabeth Warren (D-MA) recently pointed out, banks have even lower borrowing costs when they come to the federal government to borrow. They can get an interest rate of 0.75 percent on loans through the Federal Reserve discount window. Warren has also introduced a bill to address high levels of student debt by calling for student loan rates to mirror those that benefit banks.
Others have similarly taken recent action on the issue. The Consumer Financial Protection Bureau put forward a set of proposals that include allowing borrowers of federal loans to refinance to lower interest rates and to give them access to income-based repayment plans, as well as allowing the holders of private loans to enter rehabilitation programs. Sens. Jack Reed (D-RI) and Sherrod Brown (D-OH) have also introduced legislation to allow students debt borrowers to refinance.