With the cost of a college education rising and only expected to get pricier, lawmakers in the state of California are floating the idea of enabling student debt holders to refinance into lower interest rate loans. This time around, they are looking to entice the private market into taking the initiative.
SB 674, dubbed the ReLIEF Act, was introduced by state Senator Ben Allen of California and is being co-sponsored by California State Treasurer John Chiang and The Service Employees International Union. The bill would provide incentives for banks to offer lower interest rates on student loans that are refinanced. “Student loan debt is a toxin to the American dream. It prevents people from buying a home, starting a business or saving for retirement,” said Treasurer Chiang in a press release announcing the new piece of legislation. “College graduation is supposed to be synonymous with opportunity and prosperity and not a detour into a modern-day debtor’s prison.”
The move on the part of lawmakers in California to introduce legislation designed to fight back against outsized college debt comes at a time when the nation collectively owes more than $1.41 trillion in student debt. The average graduate owes up to $28,000 on average. The state of California is doing a bit better than the national average when it comes to student loan debt. Recent research from LendEDU shows that the average college graduate in the state of California owes $22,724, lower than the national average. More than half of graduates in California—55 percent—owe at least one student loan.
In order to refinance a student loan under the proposed bill, borrowers must be a resident of California who has earned an associate’s, bachelor’s, graduate’s or professional’s degree from college or earned a certificate or diploma from a trade or technical school. The borrower also has to have worked for a company for a minimum of six months straight. Last but not least, eligible borrowers must be current on their student loans with no late payments. The bill also calls for the creation of a $25 million so-called first loss protection fund to secure lenders who partake in the new agenda, specifically those who refinance high-interest private student loan debt.
Chiang said in the press release that helping college graduates out from under this crippling debt is taking on a new sense of urgency as President Trump’s Administration is moving to roll back some of former President Obama’s policies on student loan collections. Chiang cited consumer advocates by saying that the moves on the part of the Trump Administration will make it even harder for student debtors to pay back their loans, resulting in more defaults.
Currently, the national default rate on student loans stands at 11.8 percent. If the program is approved, it would be administered by the California Educational Facilities Authority which is headed by Chiang. “Passing SB 674 would be a big help to students from some low-wage and ethnically diverse families. They have little choice but to borrow heavily to attend college, earn degrees and get a shot at a solid middle class life for them and their families,” he said in the release.
Author: Andrew Rombach
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