Durbin Discusses Legislation Allowing Student Loan Holders to Lower Their Interest Rates
“Bank on Students Emergency Refinancing Act” Would Allow Borrowers to Refinance Existing Student Loans at Today’s Rates
[CHICAGO] – U.S. Senator Dick Durbin (D-IL) today discussed legislation introduced in the Senate last week which will allow those with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers.
“Student debt has reached the breaking point in this country,” Durbin said. “Millions of borrowers are looking at a lifetime of debt just because they wanted to do the right thing and get a college degree. The bill which I co-sponsored last week will help ease that burden, allowing them to lower their interest rates. I hope my colleagues join me in supporting this common-sense legislation.”
Many borrowers with outstanding student loans have interest rates of nearly 7 percent or higher for undergraduate loans, while students who took out new undergraduate loans last year paid a rate of 3.86 percent under bipartisan legislation passed by Congress last summer. The Bank on Students Emergency Loan Refinancing Act would allow students and young people to pay back their outstanding loans at these same low rates, lowering payments by hundreds or thousands of dollars a year for potentially millions of borrowers. The bill was introduced last week by U.S. Senator Elizabeth Warren (D-MA). Durbin is an original co-sponsor.
The bill allows borrowers with federal FFEL loans or Direct Loans taken out prior to July 1, 2013 to refinance into the interest rates available to borrowers during the 2013-14 academic year. Those new rates are 3.86% for Undergraduate Direct Loans, 5.41% for Graduate Loans, and 6.41% for PLUS Loans taken out by a student’s parents.
Private loan borrowers will also be eligible to refinance. To do so, the bill allows the federal government to purchase private loans from lending institutions and reissue them as federal loans at lower interest rates. Private student loans often have uncapped variable interest rates, hefty origination fees and few, if any, consumer protections.
The legislation would be fully paid for by enacting the Buffett Rule, which would limit special tax breaks for the wealthiest Americans that allow millionaires and billionaires to pay lower effective tax rates than middle class families.
There are nearly 1.7 million Illinoisans with outstanding student loans. The average student loan debt for Illinois students in the class of 2012 was $28,028.
Last week’s bill was the third in a series of proposals introduced by Durbin, Warren, and U.S. Senator Jack Reed (D-RI) to ensure basic protections for student borrowers and to help address the mounting student loan debt crisis. Earlier this year, the three introduced the Student Loan Borrower Bill of Rights Act and the Protect Student Borrowers Act of 2013. The Student Loan Borrower Bill of Rights Act would ensure struggling student loan borrowers are treated fairly and understand the full range of repayment options and resources available to them. The Protect Student Borrowers Act of 2013 would help make institutions of higher education more accountable for student indebtedness by requiring institutions to assume some of the risk of a student loan default.