Debtors with high interest rates on their federal student loans would refinance into cheaper loans under proposed legislation to be unveiled this week, in a move that would lower borrowers’ burdens and potentially hurt private lenders and investors.
The plan sponsored by Sen. Kirsten Gillibrand (D-N.Y.) would force the U.S. Secretary of Education to automatically refinance most government loans carrying interest rates above 4 percent into fixed, 4-percent loans. Roughly nine of 10 federally-backed loans would be affected, saving nearly 37 million borrowers billions of dollars in annual interest payments.
“At a time when corporations, homeowners and even local governments are refinancing at historically low interest rates and saving millions of dollars, students and families who take out loans to pay for college are getting left behind," Gillibrand said. "Ensuring that our graduates are not saddled with unmanageable debt by keeping interest rates low is just common sense."