Senators Propose A Legislation Refinancing Student Loans

Even if President Joe Biden has extended the student loan payment pause until October 2021, an idea about student loan cancellation is floating. However, it remains unclear if legislation regarding canceling student loans would be an option. As an alternative, there’s legislation that can help individuals with their student loans.

Senators Mark Warner (D-VA), along with Jon Tester (D-MT), and Angus King (I-ME) put forward the Coronavirus Emergency Student Loan Refinancing Act of 2021. This proposal comes after the passage of the American Rescue Plan; among those provisions is to send $1,400 worth of stimulus checks.

If passed, refinancing may be lighter on your wallet. But before we get to know what the senators have proposed, let’s answer a question that’s on everyone’s minds.

Will Student Loans be Cancelled?

Let’s look at the numbers first. Many Americans owe $1.7 trillion in student debt.

There’s a possibility of a student loan cancellation, but don’t expect that everything inclusive of your loans would be canceled. Plus, you might not be eligible to have student loan cancelations either.

Back in February, Elizabeth Warren (D-MA) and Chuck Schumer (D-NY) suggested canceling student loans up to $50,000. Those apply only to people that earn less than $125,000 a year. However, in a CNBC report, Biden ruled that out and may accept only up to $10,000. But the president is reconsidering this matter and even reached out to Miguel Cardona (Education Secretary) to see if the $50,000 is plausible.

Currently, private refinancing and forgiveness are available for borrowers. You’ll need to apply and know if you’re eligible. In any case, the American Rescue Plan does indicate that student loan forgiveness will remain tax-free until December 31, 2025.

What’s The Reason for This Student Loan Refinancing Legislation?

The senators who are pushing to have this bill passed stress that individuals are having difficulties paying their student loans due to the effect of the pandemic. Not only would the bill lighten the load on borrowers, but it could contribute to a healthier economy as it bounces back.

Plus, to emphasize, the refinancing provision applies only to federal loans and not private student loans. In terms of the 10-year treasury yield and the interest rate, everyone will get the same interest rate regardless of credit standing.

Current Refinancing Situation on Student Loans

So far, individuals may not refinance their loans with the federal government, but they will become available with the legislation. Once it’s passed, individuals need to apply for refinancing.

Currently, individuals can request refinancing with private lenders. Aside from student loan refinancing, you can choose a public service loan forgiveness or an income-driven repayment plan.

Student Loans and Interest Rates

Based on the new legislation that the three senators aim to pass, here are their proposed plans in helping individuals dealing with student debt:

Undergraduate Borrowers

• Federal Direct Stafford
• Unsubsidized
• PLUS
• Consolidated loans

Interest rate: lowest yield on the 10-year US Treasury + 2.05%

Graduate Borrowers

• Federal Direct Stafford
• Unsubsidized

Interest rate: lowest yield on the 10-year US Treasury + 3.6%

PLUS

Interest rate: lowest yield on the 10-year US Treasury + 4.6%