Amid a staggering $1.2 trillion in student loan debt amongst U.S. college students and graduates, federal legislators have proposed plans to lower interest rates in hopes of slowing the ever-accruing debt problem.
The legislation, introduced by Sen. Elizabeth Warren, D-Mass., on May 6, would allow those with outstanding student loan debt to refinance at lower interest rates. Some private borrowers are covered under the legislation, but it mainly covers those with outstanding federal loans.
Although higher education is often touted as key to economic prosperity, Heather Jarvis, an attorney specializing in student loans, said the attached cost has delayed the ability of graduates to accumulate wealth.
"It really does matter to get a college degree," Jarvis said. "Student loans, unfortunately, now come with that American dream. They might make the money, they might get a good job, but then they have to send the money right back out to the student lenders."
In recent decades, state and federal funding for higher education has declined, leading to higher university tuition rates, said Matthew Reed, program director of the Institute for College Access and Success. As a result, more families gain access to higher education through loans and grants, Reed said.
In 2012, 71 percent of college seniors graduated with a diploma and an average debt of $29,400, according to the Project on Student Debt.
If these college graduates paid that average debt at an interest rate of 3.86 percent over 10 years, they would pay $295.71 a month.
Sen. Debbie Stabenow, D-Mich., who co-sponsored the legislation, said the intent of lowering interest rates is to cut down on ever-growing student loan debt, which is hindering students after graduation and now outweighs credit card debt.
“Too many people in Michigan are saddled with decades of debt just because they wanted a fair shot to go to college and get ahead," Stabenow said in a statement. "That is why I’m leading the effort to make college more affordable and to help borrowers who are already weighed down by exploding and unsustainable levels of student debt."
For those with either subsidized or unsubsidized Stafford loans, that rate would be 3.86 percent, Jarvis said.
Jarvis said allowing debtors to refinance at a lower interest rate would "level the playing field" because some are borrowing at higher rates, such as 6.8 percent.
"I think it is absolutely a strong step," Jarvis said. "It does what it intends to do which is create a system where borrowers can afford repayment of student loans that are at reasonable terms."
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