Is Student Loan Reform Good News intended for Federal Loan Borrowers?
If Senator Elizabeth Warren of Massachusetts gets her method, there will be good news on the horizon for federal student loan borrowers. Warren recently announced on her blog that she will be introducing new legislation to allow graduates with high interest rate student loans to refinance those loans at rates “at minimum as low as those now being offered in order to new borrowers in the federal education loan program. ” Warren points out that “when interest rates are low, house owners can refinance their mortgages. Large corporations can swap more expensive financial debt for cheaper debt. Even condition and local governments have refinanced their debts. ” But education loan borrowers cannot currently refinance their particular debt at prevailing interest rates by means of any existing federal program. The present federal student loan consolidation program allows borrowers only to lock in a measured average of all of their existing interest rates, not necessarily get themselves a lower rate of interest.
While the details of the proposed loan refinance legislation remain to be seen, we at College Coach support the efforts of Senator Warren in seeking to make student loans more affordable. We do, however , see barriers to student loan repayment achievement that are not being addressed, and can not be addressed through a simple refinancing plan. Some additional ideas intended for student loan reform include:
- Allowing borrowers to shop for analysis loan servicer rather than being locked into an assigned servicer, since competition among servicers may improve borrower services and repayment bonuses.
- Requiring loan servicers to apply prepayments to the highest curiosity loans by default (rather than using them to the next month’s payment as some servicers do), and allowing debtors to choose which of their loans they need prepayments applied to.
- Requiring loan servicers to provide accelerated pay back schedules upon borrower request.
- Using the tax return to collect income-based payments in order to simplify the repayment process.
- Improving the Student Loan Interest Deduction to focus on repayment assistance toward lower-income debtors.
Few might argue that the current system of student loan pay back is unflawed. As Senator Warren points out in her blog, over a third of borrowers under age thirty are more than 90-days delinquent on their student loans. A loan refinancing plan is one potential solution, but additionally, there are many challenges that borrowers face repaying their loans that are management and should be fixable at low priced.
Leave a comment below to tell us what education loan reforms you would like to see.