THIS BILL DID NOT PASS–This page is for informational purposes about what has been happening in the student loan ecosystem
Senator Elizabeth Warren recently put forth a bill named the Student Loan Fairness Act H.R 1330, with the intent of helping student loan borrowers in managing of their debt, and being so called “fair” for those who have earned it. The Student Loan Fairness Act was introduced on March 21st 2013, and since has 51 cosponsors. There are a few important benefits of the bill which can make a big impact in borrowers lives.
This new legislation has no expiration dated. As long as there is no further interference from the Senate, the House or the President, students and their loan co-signers will know what to expect when applying for a loan. This resolves the problem noted by Megan McClean of the National Association of Student Financial Aid Administrators, “The past couple of years we’ve been in these situations where students haven’t known up until the last minute what their interest rate was going to be, because we were waiting for Congress to act.” The Student Loan Forgiveness act proposes to tie interest rates to the federal reserve discount window rate. The discount window rate is the rate which banks are able to borrow from the federal reserve, which currently stands at .75%. Student Loan Borrowers are currently paying 9x higher than the banks are able to borrow for. These rates would apply to Federal Subsidized Stafford Loans.
10/10 Repayment Plan
The Student Loan Fairness act would offer borrowers the 10/10 loan repayment plan, which limits the payment on student loans to 10% of discretionary income. Though this is already currently offered with the Income Based Repayment, one of the big differences is that the proposed 10/10 repayment also offers a maximum capitalization of 10% of interest over the loan that was taken out. This means that your loan balance will never surpass your original balance plus 10%. This is a huge benefit of the program, where currently students are baffled on how they can be paying every-single-month yet their balance continues to rise rather than fall.
The 10/10 repayment plan also offers 120 months of forgiveness. In the current Direct Loan program, only public sector employees can qualify for loan forgiveness after 120 months. In the 10/10 repayment, anyone in that repayment would have their loan forgiven at the end of those 10 years as long as their loans were taken out prior to the date of enactment of this bill. If your loans are taken out after the enactment of the bill, then you would qualify for a maximum of $45,520 in loan forgiveness. The kicker? Under this bill, the balance forgiven would not be taxable as it is in the current loan forgiveness programs.
Convert Private Student Loans Into Federal
There is currently over $200 billion in outstanding private student loans, with borrowers struggling to find solutions to their financial hardships. Private lenders, in most cases, are not as willing to provide borrowers with options on the student loans as the federal government is. Loan forgiveness, income-based repayments, teacher principle reduction are not words which will come from your private lenders mouth. The Student Loan Fairness act tries to address another big problem which is that private borrowers are often trapped with no options available to them.
The Student Loan Fairness Act would allow borrowers a year in which they would be able to convert their private student loans into federal loans if they qualify. You would be eligible for this conversion if you were eligible for federal student loans at the time you took out your private loans, and also have a gross income less than your total educational debt. Once your loan is converted you would be able to enroll into any of the programs available to federal borrowers. Even if you do not qualify for the conversion, the mere fact that this option exists will force private lenders to work with their borrowers and offer programs to parallel what is offered in federal programs knowing the private lending market could lose $100b in loans in a very short time.
Enhanced Public Service Loan Forgiveness
In the current Public Service Loan Forgiveness program, borrowers may be eligible for loan forgiveness after 120 payments in the direct loan program under qualifying repayment options. The Student Loan Fairness Act takes this one step further and would offer forgiveness to public sector employees after only 60 months. This five-year forgiveness may drive many college graduates to work their first five years out of college in the public sector to simply take advantage of the loan forgiveness, and then pursue whatever profession they want after this. The 60 month public service loan forgiveness plan would make the exorbitant fees of college less daunting knowing that you could simply sacrifice a few years of your desired profession to work in the public sector for a clean slate.
So Whats The Catch?
In as quickly as two years from this academic term, students and their families may be paying more for their college tuition. With the prospect of such small payments on your student loans, regardless of balance, and forgiveness aspects that will be extremely enticing, borrowers will be more apt to taking out these loans without thinking of the consequences. The result of this will be colleges and universities across the U.S raising their tuition costs, with the burden falling on the tax payer when the loan holder is forgiven of their balance. Some student advocates worry that rises in income will not keep up with rises in tuition.
It is this constantly rising tuition, along with over borrowing by so many students and a looming student debt crisis that has to be addressed. As Robert Weinerman of College Coach put it, “Students borrow because the loan is there. The interest rate isn’t a factor in their decision to borrow, their eligibility is.”
Right now, there is $1.2 Trillion in student debt. That is larger than even credit card debt for everyone in the U.S. This huge debt is beginning to have a chilling effect for many households. Large purchases such as homes and new cars are being put off in order to cover student loan payments. This does mean minor up ticks in sales of used automobiles, auto repair and restoration, home renovation projects, etc. but these are not what drive robust economic growth.
Recent reports released from the Federal Reserve and the Treasury Department have even made mention of it and some private organizations are comparing this to the housing crisis that was ignored until the bubble finally burst in 2008. While it is not necessarily accurate to compare the Student Loan Fairness Act to Fannie Mae or Freddie Mac policies, it has been the willingness of both parties in the past to put political concerns ahead of sound financial policy that raise concern with many people in and out of the government.
If you want to support the Student Loan Fairness Act, you can get behind it by signing this petition which currently has over 200,000 signatures. We also urge you to write to your representative and senators
Compare the Best Student Loan Refinance Rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.