U.S. Sen. Bill Nelson (D-FL) is sponsoring legislation to cut student loan rates and allow borrowers with existing student loans to refinance to new lower rates.
The proposal comes roughly one week after the federal government raised interest rates on student loans for undergraduate students 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.
“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?”
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.
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.
Nelson plans to file his bill when Congress returns from recess next week.