During a Friday visit to Northern Illinois University, U.S. Senator Dick Durbin (D-IL) discussed legislation introduced in the Senate earlier this year to allow student loan holders to lower their loans’ interest rates with students, alumni and NIU President Doug Baker. The bill, which Durbin co-sponsored, allows current loan holders to refinance to a lower interest rate. A vote is expected on the bill when the Senate reconvenes the week of September 8th.
“Student debt has reached the breaking point in this country. Far too many young people are looking at a lifetime of debt just because they wanted to do the right thing and get a college degree,” Durbin said. “Reasonable borrowing has long been part of keeping higher education affordable. The bill which I co-sponsored earlier this year will help ease that burden by allowing them to lower their interest rates. The Senate will soon take up this common-sense legislation, and I hope my colleagues join me in supporting it.”
President Baker said he appreciated the senator coming to NIU to address what he called “a critical issue in higher education,” noting that the costs have gone up for students as budgetary support for higher educational institutions has declined over the past 12 years.
“We’re doing everything we can to keep tuition down. This year, tuition, room and board were held constant. We’re going to continue to go in that direction, look at our expenses and be efficient and create a great value for our students,” Baker said.
Many borrowers with outstanding student loans have interest rates of nearly 7 percent or higher for undergraduate loans, while students who took out new undergraduate loans last year paid a rate of 3.86 percent under bipartisan legislation passed by Congress last summer. The Bank on Students Emergency Loan Refinancing Act would allow students and young people to pay back their outstanding loans at these same low rates, lowering payments by hundreds or thousands of dollars a year for potentially millions of borrowers. The bill was introduced last month by U.S. Senator Elizabeth Warren (D-MA). Durbin is an original co-sponsor.
“Many students have to take out loans,” Baker added. “The senator’s work to reduce the interest rate on those, I think, is going to be critical to make colleges and universities more affordable for students.”
Senior Family Individual Development and Psychology double-major Angela Isom is one of those students paying for her education with the help of scholarships and loans. She is also a financial literacy educator for an NIU program called Financial Cents. The first generation college student is planning to graduate from NIU in December and is worried about how she will be able to pay back her loans on a new professional’s salary once she graduates.
“Being able to finance your education is important. It’s very important that you have your education,” she said, offering advice to other students. “After that, when it comes to payment, go seek help. Go to the Financial Cents educators or the Financial Aid advisors to help you, because you don’t want to get caught up in loans with interest rates that are skyrocketing.”
The Bank on Students bill would allow borrowers with federal FFEL loans or Direct Loans taken out prior to July 1, 2013 to refinance into the interest rates available to borrowers during the 2013-14 academic year. Those new rates are 3.86% for Undergraduate Direct Loans, 5.41% for Graduate Loans, and 6.41% for PLUS Loans taken out by a student’s parents.
Private loan borrowers would also be eligible to refinance through a provision that allows the federal government to purchase private loans from lending institutions and reissue them as federal loans at lower interest rates. Private student loans often have uncapped variable interest rates, hefty origination fees and few, if any, consumer protections.
Like many students, NIU alumna Aysha Flowers has a mix of federal and private student loans she has to pay off. She said her loan repayment responsibilities have affected not only her lifestyle but also has limited her ability to save for the future.
“For people who are in repayment, to have less to pay over the course of 10-20 years, it could change your future,” she said of the proposed legislation. “Because of the amount [of loans] I have taken out to fund my education…I can’t really plan for my future the way I would like to.”
The legislation would be fully paid for by enacting the Buffett Rule, which would limit special tax breaks for the wealthiest Americans that allow millionaires and billionaires to pay lower effective tax rates than middle class families.
According to a press release from Senator Durbin’s office, there are nearly 1.7 million Illinoisans with outstanding student loans. The average student loan debt for Illinois students in the class of 2012 was $28,028.
“If you have to take out loans, understand that loan payments sound scary, but the loan servicers do work with you; they do understand you are a real person and have life situations,” added Flowers, who has worked as a financial aid advisor for the past four years and told Senator Durbin she actually missed her first student loan payment. “It’s a matter of taking the initiative and communicating with the loan servicer if you are having problems.”
The refinancing bill is the third in a series of proposals introduced by Durbin, Warren, and U.S. Senator Jack Reed (D-RI) to ensure basic protections for student borrowers and to help address the mounting student loan debt crisis. Earlier this year, the three introduced the Student Loan Borrower Bill of Rights Act and the Protect Student Borrowers Act of 2013. The Student Loan Borrower Bill of Rights Act would ensure struggling student loan borrowers are treated fairly and understand the full range of repayment options and resources available to them. The Protect Student Borrowers Act of 2013 would help make institutions of higher education more accountable for student indebtedness by requiring institutions to assume some of the risk of a student loan default.