Less than one week after the federal government increased interest rates on federal student loans, U.S. Sen. Bill Nelson, D-FL, said he’s filing legislation to cut student loan rates across the board and allow borrowers with existing student loans to refinance to new lower rates.
On Saturday, federal student loan interest rates for undergraduate students increased from 3.76 percent to 4.45 percent. If approved, Nelson’s bill would cap rates for undergraduates at 4 percent, and allow borrowers with existing student loans that have a rate higher than 4 percent to refinance their loans to the new lower rate – a move that’s currently barred under existing law.
“If we really want to make higher education more accessible in this country, we have to make it more affordable,” Nelson said. “If you can get a home loan at 4 percent, why can’t students get an education for the same rate?”
More than 43 million Americans currently have outstanding student loan debt. In Florida alone, students graduating with a four-year degree leave college with more than $24,000 in student loan debt on average.
In addition to capping student loan rates, Nelson’s bill would also eliminate the “loan origination fees” charged to students to process their loans. These fees are often taken out of a student’s original loan amount before they receive it. For example, a student taking out a $10,000 loan may receive only $9,600 from their lender but still be responsible for paying back the full $10,000 after they graduate. Nelson’s bill would eliminate that $400 fee.
Once they are set each year, student loan interest rates are fixed for the lifetime of the loan and cannot be refinanced, even if rates go lower. Borrowers who took out loans between July 1, 2006 and July 1, 2013, likely have a fixed rate of 6.8 percent. And despite a significant drop in interest rates since 2013, current law bars those borrowers from refinancing their existing loans. Nelson’s bill would change that by allowing any borrower with an existing federal student loan to refinance their loans one time to a new lower rate.
In addition to capping undergraduate rates at 4 percent, Nelson’s legislation would cap rates for graduate students at 5 percent and the rates for parents of undergraduates at 6 percent.
Nelson says capping interest rates, ending loan origination fees and allowing borrowers to refinance existing loans would help to make education more affordable for Florida students.
