Late last week, the student loan refinancing bill introduced by Senator Warren (D-MA) came up 4 votes short of the 60 needed to end debate and prevent a filibuster. If enacted, S. 2292, the Bank on Students Emergency Loan Refinancing Act, would establish separate refinancing programs for federal and private student loans. It would generally let qualified borrowers refinance their eligible loans at the same interest rates offered to borrowers who obtained new federal student loans for the 2013-2014 school year.
In particular, under the bill, federal undergraduate loans would be refinanced at an interest rate of 3.86%, graduate loans at 5.41%, and parent loans and consolidation loans at 6.41%. Private undergraduate loans would be refinanced at 3.86%, graduate loans at 5.41%, and any refinancing combining undergraduate loans and graduate loans would be at 6.41%. For federal loans, there would be a 0.5% origination fee. For private loans, the origination fee would equal the fee charged for Federal Direct Unsubsidized Stafford Loans at the time of disbursement, currently 1.072%.
While these terms are certainly attractive, the need for the bill is open to debate and the consequences are significant. As we previously reported, at the Senate Budget Committee hearing last week, witnesses testified to the bill’s flaws, including the fact that it effectively punishes borrowers who are conscientious in repaying their loans. Moreover, Senator Warren’s embrace of CFPB statements and reports notwithstanding, the view that student loan debt is having a negative effect on the rest of the economy is by no means universally accepted. Hopefully, the bill will now receive the careful scrutiny that it deserves.