By now, you’ve probably heard about federal student loan refinancing, but it can be confusing to figure out what help is readily available and the best option for your financial situation.
We receive lots of questions about Sen. Elizabeth Warren’s refinancing bill and have found there are many rumors floating around. We’re here to clear them up and share what you need to know.
Is federal student loan refinancing available yet?
Student Loan Refinancing by the federal government hasn’t been passed as of yet to help students repay their loans. Sen. Warren’s Bill and several others were shot down by congress earlier this year in Sept. 2014.
Keep in mind, there are several private student lenders who will refinance and consolidate federal student loans into a new private student loan. Although this comes with a loss of many Income Based Repayment and Public Service Loan Forgiveness benefits offered under the federal program.
Is there any form of help on the way?
There are a few bills that might have a chance if reintroduced to congress. Sen. Warren’s refinancing bill called the “Bank On Students Emergency Loan Refinancing Act” would allow nearly 25 million student loan borrowers to refinance at the rates of less than 4 percent.
Don’t get your hopes up about this one– The bill failed to pass in June and recently died again in the Senate. For now, there’s serious doubt this bill will pass.
Senators Marco Rubio and Mark Warner have proposed a bill called the “Dynamic Repayment Act.” However, this bill does not offer loan refinancing, so it likely won’t help students as much as Warren’s bill would.
Instead, the Dynamic Repayment Act would tweak how borrowers repay loans. Borrowers would be automatically enrolled in income-based repayment rather than the current 10-year standard repayment. They’d pay 10 percent of their income towards loans. But without a plan that lowers interest rates, it’s hard to see how this plan would help students beyond the already available repayment options. The Dynamic Repayment Act bill has yet to be voted on.
Why haven’t any bills been passed?
It’s complicated, but the center of the debate is, of course, money.
Under Warren’s plan, loan refinancing would be funded by tax reforms. These tax reforms would follow the “Buffett Rule,” which would raise taxes for those making more than $1 million per year. It’s this part of the bill that’s faced criticism and has likely prevented its passage.
What about President Obama’s student loan plan?
You’re probably thinking of President Obama’s changes to the “Pay As You Earn” program. Announced in June 2014, this plan would allow as many as 5 million more borrowers access to Pay As You Earn.
While this could help some borrowers, two important notes:
1. This isn’t a refinancing plan. It’s a change to an existing student loan repayment plan that might become available to as many as 5 million new borrowers.
2. It’s about lowering payments, not reducing debt. The limited number of people who can take advantage will only have to pay a smaller portion of their income towards student loans. They’d be eligible for student loan forgiveness after 20 years for their remaining balance. Like we’ve shown before, this isn’t a great strategy for average borrowers.
Another important note: this plan isn’t targeted to go into effect until December 2015. So if this change does affect you, you’ll still have to wait.
What can student loan holders do for now?
Unfortunately, there isn’t new help available for student loan refinancing relief right now. It’s uncertain if bills offering relief will ever pass and once they do, when they go into effect. For now, borrowers can:
1. Wait it out. We’re hopeful there will be relief for borrowers in the future. But it’s hard to know when this will actually happen.
2. Consider private student loan refinancing. You don’t have to wait for the federal government to be able to refinance your loans. Eligible borrowers can take advantage of private student loan refinancing and start saving on interest now. Check out student loan refinancing options here.
3. Look at other repayment options. If you’re struggling to make payments, changing your payment plan might be a good option to avoid default. But beware: unlike refinancing at lower interest rates, many of these plans that reduce monthly payments increase the total interest paid on your loans. Make sure to look closely at the long-term costs of whatever option you choose.
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Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
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|2.75% - 7.24%||Undergrad & Graduate||Visit SoFi|
|2.57% - 6.39%||Undergrad & Graduate||Visit Earnest|
|2.57% - 7.12%||Undergrad & Graduate||Visit CommonBond|
|2.99% - 6.99%||Undergrad & Graduate||Visit Laurel Road|
|2.58% - 7.26%||Undergrad & Graduate||Visit Lendkey|
|2.89% - 8.33%||Undergrad & Graduate||Visit Citizens|
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