After the housing bubble burst and the Recession of 2009, home refinancing became a viable option for homeowners to stay afloat financially. These refinancing options allowed homeowners to lower interest rates sparing them from mounting interest payments and avoiding foreclosure.
Some legislatures think similar practices, such as refinancing, should be extended to student loans. One example of legislatures such efforts is the recent “Higher Ed, Lower Debt” bill introduced in Wisconsin by State Senator Dave Hansen (D-Green Bay) and State Representative Cory Mason (D-Racine). The bill has four main components.
1. It provides more information for borrowers about their rights and responsibilities.
2. It improves tracking of student loan debt information.
3. It allows borrowers to refinance their loans at lower interest rates.
4. It creates a state tax deduction for payments on student loans.
“This legislation has the potential to provide real relief to hundreds of state residents who are struggling to make payments during this slow economy. These are responsible people who sought to improve their lives and the economic well-being of their families by furthering their education,” Hansen said. “They shouldn’t be burdened for doing the right thing. Under this plan they would finally be able to refinance their student loans just like others can refinance their home loans.”
With student debt nearing $1.2 trillion nationwide, it is the second largest consumer debt in the country. According to S&P, it could be the next bubble to burst. In Wisconsin, over 753,000 Wisconsin residents hold federal student loan debt averaging $22,400 upon graduation. Wisconsin’s representatives are attempting to curtail the next financial crisis.
“Hundreds of thousands of Wisconsin’s families are being crushed by the weight of student loan debt,” Mason said. “This bill will provide real relief to Wisconsin’s student loan borrowers, many of whom are paying off their student loan debts years, even decades, after their education has concluded.”
Not only does this bill offer refinancing options, but it also provides loan counseling, consumer protections, and tax relief for Wisconsin residents.
Similar legislation to address the student debt crisis in America has been circulating around the Senate, too.
On the federal level, Sen. Kirsten Gillibrand (D-NY) has introduced a bill for refinancing student loans called the Federal Loan Student Refinance Act, would allow students to refinance their student loans at a fixed rate of 4 percent, which would reduce interest payments for nine out of ten borrowers.
Additionally, Sherrod Brown (D-OH) has introduced his own bill called Refinancing Education Funding to Invest (REFI) for the Future Act, which would authorize the Department of the Treasury to find inventive solutions to mitigate and potentially eliminate inefficiencies in the private student loan market. Sen. Heidi Heitkamp (D-ND), Sen. Dick Durbin (D-IL), and Sen. Patty Murray (D-WA) joined Brown in lending their support for his bill.
Other states and the country as a whole will be watching the “Higher Ed, Lower Debt” bill as a possible framework for their own refinancing student loan legislation in order to prevent another crisis like the housing bubble from devastating millions of Americans.