CBSNews -- Relief may be on the way for college graduates stuck with high-cost student debt. Members of the U.S. House Education and Workforce Committee and nearly two dozen U.S. senators jointly introduced legislation Tuesday that would allow the 40 million Americans who are shouldering $1.2 trillion in student loans to refinance their debts at today's lower interest rates.
Current law prevents borrowers from refinancing their student loans to obtain lower rates, as people commonly do in refinancing a mortgage or auto loan. That has left millions of graduates paying loans with interest rates of 7 percent or more, even though rates on most other loans are at historically low levels.
Sponsors of the legislation estimate that a middle-class graduate with $30,000 in school debt would save roughly $4,000 in interest expenses by refinancing. Backers hope it will also cut down on loan defaults, which bedevil roughly one out of every seven student borrowers."Allowing students to refinance their loans would put money back in the pockets of people who invested in their education," said Sen. Elizabeth Warren, D-Massachusetts, co-author of the debt-relief bill, in a statement. "These students didn't go to the mall and run up charges on a credit card. They worked hard and learned new skills that will benefit this country and help us build a stronger middle class and a stronger America."
Said Rep. John Tierney, D-Massachusetts, co-sponsor of the House version of the "Bank on Students Emergency Refinancing Act": "Homeowners and businesses are often able to refinance their debts. Students should be able to do the same."The legislation would allow students who borrowed prior to 2013 to fund an undergraduate degree to refinance both public and private student loans into a new loan bearing a 3.86 percent rate. Loans taken out for graduate school could be refinanced at a 5.41 percent rate, while parent loans could be refinanced at 6.41 percent.
The identical House and Senate bills face uncertain prospects, especially as election season heats up ahead of the November mid-terms. The Government Accountability Office has estimated that student loan repayments will deliver a $66 billion profit to the U.S. Treasury over time. Cutting interest rates would reduce that stream of government revenue.
Authors of the legislation propose to make up for the projected shortfall by implementing the so-called Buffett rule, which would limit tax deductions and credits offered to wealthy Americans. That proposal, named after celebrated investor Warren Buffett, who has spoken in favor of raising taxes on top earners, has proved politically controversial.