California’s New ‘ReLIEF Act’ Could Make Student Loan Refinancing Cheaper

the ReLIEF Act

California has seen several recent legislative efforts to ease the financial burden of college. This includes San Francisco’s free community college for all and the Degrees Not Debt Act to limit California students’ loans.

A new bill aims to help borrowers who have existing private student debt. Here’s what Californians should know about Senate Bill (SB) 674, known as the ReLIEF (Loan Improvement for Enhanced Futures) Act.

The ReLIEF Act will secure refinanced student loans

A new legislative proposal in California could help more of the state’s borrowers refinance private student loans with lower interest rates. According to a press release from the California State Treasurer’s office, SB 674 would create a $25 million fund to partially secure refinanced student loans.

California State Treasurer John Chiang and California Sen. Ben Allen, D-Santa Monica, are co-sponsors of the ReLIEF Act. They announced the bill in a Tuesday press conference at the state capitol in Sacramento.

“Student loan debt is a toxin to the American dream,” said Treasurer Chiang at the press conference. “It prevents people from buying homes, starting a business or saving for retirement.”

How the ReLIEF Act works

The ReLIEF Act seeks to help borrowers with high-interest private student loans refinance to lower rates. According to the Los Angeles Times:

  • Borrowers apply to refinance student loans at a financial institution.
  • If approved, the lender contacts the California Educational Financing Authority to authorize participation in the plan.
  • The California Educational Financing Authority guarantees 10 percent of the loan’s balance. That means it will repay this portion to the lender if the borrower defaults.

With the loan partially secured by the California treasure, lenders face less risk. They might, in turn, offer a borrower a lower interest rate.

“[The bill] is going to create better financial opportunities for so many more Californians,” Chiang said.

How much relief can borrowers expect?

It’s unclear how much relief borrowers can actually expect from the ReLIEF Act. The 10 percent guarantee on student loans could help borrowers get lower student loan rates — but not by much.

Chiang shared an example of a hypothetical young woman, “Jane,” who refinances $25,000 in private student loans with a 10-year repayment period.

If she used the ReLIEF Act to lower interest rates from 8.50% to 6.50%, her monthly payments would drop from $310 to $284. She would save an impressive $3,132 over the life of the loan.

However, many borrowers already get similar savings by refinancing student loans on their own. So the real question is: how much lower would Jane’s refinanced student loan rates be with SB 674 than without it?

The difference between rates through the ReLIEF Act might only be 0.50%, according to an estimate in the LA Times. In Jane’s example, that 0.50% would amount to a $6 difference in monthly payments and $768 in total student loan interest savings.

Who is eligible for the ReLIEF Act?

Borrowers have to meet the following requirements to be eligible to use the ReLIEF Act to secure loans:

  • Refinance $25,000 or less in private student loans.
  • Hold an associate, bachelor’s, graduate, or technical degree.
  • Be currently employed.

Unfortunately, student loan borrowers who are unemployed or drop out of college are among the most likely to default on student debt. Yet the ReLIEF Act requires employment and a degree. Therefore,  the bill would potentially exclude the borrowers with the greatest need for assistance.

Give state legislators feedback on SB 674

SB 674 is a sign that lawmakers have heard your concerns. They are working to address the student debt crisis — at least at the state level. The California legislature will need to vote on the bill before it becomes law, as well as find the funding for the program in the state budget.

If you live in California, reach out to your state legislator to comment on SB 674. Let them know student loans are an important issue to you; legislators will advocate for borrowers to earn your support.

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