Center for American Progress

RELEASE: CAP Brief Examines Proposals to Reset the Trillion-Dollar Student-Debt Problem
Press Release

RELEASE: CAP Brief Examines Proposals to Reset the Trillion-Dollar Student-Debt Problem

Read the report.

Washington, D.C. — With a rising number of graduates becoming financially delinquent under massive student-loan debt, the Center for American Progress released a report today examining problems in the federal student-loan system and the economic implications of a Millennial generation unable to recover from higher-education costs. The report also reviews pending congressional proposals and elements that need to be included in a plan to permit student-loan refinancing.

Data from the Department of Education show exponential growth in student debt—up 18 percent in the past eight years alone—as well as an increasing number of graduates who are unable to make substantial annual repayments on their loans. Spending patterns observe that those with student-loan debt are less likely to borrow in order to buy a car or home, holding back the nation’s housing recovery. Allowing students to refinance their debt could significantly reduce monthly payments, increase repayment rates, and stimulate the economy by freeing up a portion of each student borrower’s income.

“Student loans weigh down our nation’s young adults, and evidence suggests that many are having trouble repaying their loans,” said David A. Bergeron, co-author of the issue brief and Vice President for Postsecondary Education at the Center for American Progress. “It is time to find ways to help them better manage their debt so we can grow our nation’s middle class.”

An examination of 732 for-profit bachelor’s degree programs measures that the median repayment rate for postsecondary institutions is 39 percent. Many student-loan borrowers are only able to pay a small portion on their principle balance annually as a result of fluctuating interest rates, and nearly 40 percent are in determent, forbearance, or default. Student-loan debt is significant to lenders as well, with estimates that more than $200 billion in private education loans are outstanding. Given the growing amount of student loans entering repayment, it is critically important to provide refinancing options for student-loan borrowers.

The report lays out current legislative proposals that, when taken together, provide meaningful improvements to student-loan repayment among existing borrowers:

  • The Responsible Student Loan Solutions Act, which is designed to reset student-loan interest rates at the 91-day Treasury bill level. The act also gives the secretary of education the authority to reissue federal Stafford and PLUS loans at equally low interest rates.
  • The Federal Student Loan Refinancing Act, which permits consolidation of all federal loans—Direct Loans and Federal Family Education Loans held by a bank or the federal government —into a new loan at an interest rate of 4 percent or less
  • Rep. Mark Pocan’s (D-WI) student-loan refinancing proposal, which would reset interest rates at the 10-year Treasury mark and provide refinancing for Direct Loans
  • The Refinancing Education Funding to Invest, or REFI, for the Future Act, which gives the secretary of the Treasury the ability to purchase private loans or participation interests in private loans

But these pieces of legislation address only a portion of the student-loan consolidation puzzle. What is needed is a solution that is easy for student-loan borrowers to navigate, provides repayment information, and contains a conduit structure that allows lenders to take down interest rates and assist borrowers.

Overall, fluctuations in student interest rates and growing evidence of borrower distress in federal student-loan programs suggest that new and aggressive policy solutions need to be enacted to ensure that repayment terms remain manageable and students are able to progress in retiring their loans.

Read the brief: Resetting the Trillion-Dollar Student-Loan Debt Problem by David A. Bergeron, Elizabeth Baylor, and Joe Valenti

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To speak with a CAP expert on this topic, contact Katie Peters at [email protected].