Former college students buried in debt need help digging out. Congress should lend a hand by allowing them to refinance outstanding student loans at a lower interest rate.
Graduates and others are entering a job-challenged economy while carrying a crushing $1.2 trillion in student debt. New Yorkers are shouldering $60 billion of that burden, an average of $27,310 per graduate in 2012, according to the Federal Reserve Bank of New York.
With lucrative work elusive, student borrowers are having a tough time repaying. One in 10 in the state defaulted on his or her loans between 2009 and 2012. And many of those making payments have had to delay forming households, getting married, buying cars and houses. That’s not just a drag for them and their parents, it’s also a drag on the nation’s economy.
A bill headed for a June vote in the U.S. Senate would offer some relief. It would allow people with outstanding undergraduate federal student loans, some with interest rates as high as 7 percent, to refinance at the 3.86 rate the federal government currently offers on new undergraduate loans. People with graduate or professional school loans could refinance at 5.41 percent. The change would not apply to student debt held by private banks. But it would cover the 9 in 10 student loans where the federal government is the lender.
A person owing $30,000 would pay $5,000 less over the life of the loan if the interest rate is 3.86 percent rather than 6.8 percent.
Congress gave new student borrowers an important break last year when it set a market rate of 3.86 percent for most money borrowed during the 2013-14 school year. But that law did nothing for students who borrowed before 2010. Congress should help them now.
The federal government makes 36 cents in profit on each dollar it loans to students, according to Congressional Budget Office data cited by Democratic Sen. Kirsten Gillibrand of New York.
Congress should cut its customers this slack.