Ivory Tower

Refinancing Student Loans

Student debt now tops $1.2 trillion (CFPB), and borrowers are getting left behind. Consumers with car and home loans have the option of refinancing, but not those with student loans. The ability to refinance student loans will save borrowers billions, giving them the option to take control of their future and become more financially stable. Lowering interest rates to 5 percent would save $14 billion for borrowers and add $21 billion to the economy in the first year alone. (Generation Progress)

Get the Facts on Student Loans

  • Student debt now tops $1.2 trillion and impacts nearly 1 in 5 households. [CFPB 7/17/2013] [Pew Research Center 7/1/2013]
  • Average student loan debt is now $29,400. [Institute for College Access & Success 12/4/2013]
  • 600,000 Americans who began repaying student loans in 2010 defaulted on those loans by 2012, representing nearly 15% of borrowers. [Institute for College Access & Success 9/30/2013]
  • Debt levels of $30,500 or higher were more common among 27 percent of African Americans, compared to 16 percent of white borrowers. [College Board Advocacy & Policy Center 2010]
  • More than 85 percent of renters with a household income of $50k to $75k are currently repaying a student loan. [Center for American Progress 10/25/2012]
  • Student loans went from just being a little more than 3% of total debt in 2003 to more than 9% at the end of September. [The Motley Fool, 2/2/2014]
  • Lowering interest rates to 5 percent would save $14 billion for borrowers and add $21 billion to the economy in the first year alone. [Generation Progress 2/13/2013]

How Would Re-financing a Student Loan Save Money?

Let’s look at an example of having $30,000 in outstanding student loans on the standard repayment plan. If the original rate is 6.8%, the total payments would be $41,428.97. If the loan is refinanced to 3.86% (and the borrower pays a fee of 0.50%), the total payment would drop to $36,391.14. That’s a savings of $5,037.83. While nothing to scoff at, it breaks down to $503 per year, or about $42 per month. In some cases, a borrower might have been better off simply choosing a different repayment plan. Read the full article on Forbes.

Elizabeth Warren's New Plan to Lower Student Debt:

Will Congress Balk?

It's the time of year when commencement speeches filled with good cheer and optimism circulate the Internet. Yet one big issue makes this graduation season kind of a downer: student loan debt.

The amount of cash grads owe has tripled in the past eight years, and, having passed the $1 trillion mark in 2012, it only keeps swelling. Even Congress, which isn’t known for speedy action, is paying attention to the skyrocketing number. Last summer, members passed the Bipartisan Student Loan Certainty Act, which lowered the federal loan interest rate to 3.86 percent for undergraduates.

What about borrowers with outstanding debts who graduated prior to 2013? They still have to pay nearly 7 percent more, and Sen. Elizabeth Warren wants to change that.

The Massachusetts senator introduced the Bank on Students Emergency Loan Refinancing Act this month. If it passes in Congress in June, federal loans taken out before 2013 will be charged the newer (and lower) interest rates.

“Exploding student loan debt is crushing young people and dragging down our economy,” Warren said in a press release. “These students didn’t go to the mall and run up charges on a credit card.”

The bill is in its preliminary phase, but the main goal would be to let all federal borrowers refinance their debts. This would allow them to replace their existing charges with a loan with better terms.

“It’s not just a youth issue,” says Brian Stewart of Generation Progress, a national organization that promotes political and social advancement for young people. Along with Warren and groups such as Student Debt Crisis and Young Invincibles, Generation Progress has been pushing for solutions via the Higher Ed Not Debt campaign.

According to Stewart, more than half of student loan debt is held by people older than 30. “You start to hear parents and grandparents helping pay for college by taking out loans themselves and co-signing.” When young people delay buying homes and other investments because of excessive debt, the entire economy suffers.

Higher Ed Not Debt’s latest project, #ItsOurInterest, aims to spread awareness about the refinancing movement by asking people to record and submit their personal debt stories. Voters get to pick winners, who will receive $500 each. The prize may pale in comparison with the average college debt, which stands at $29,400, but telling these stories might be the empowerment borrowers need.

Sure, student loan tales might be harder to hear than anecdotes about fish and advice like “stay foolish.” But it’s a conversation that needs to start before any change can happen.

“You don’t want to sugarcoat things,” Stewart said. But not carrying a massive debt before your career even starts? Now that’ll give graduates a reason to "get excited to go out in the world.”