Student Loans in the News: Falling Interest Rates
A brief round-up of recent articles and blog posts that discuss current student loan debates and data
About the author: Kevin Mahoney, CFP® is a fee-only financial advisor in Washington, D.C. Kevin's work with his clients focuses on paying off student loans, buying a house, investing savings, and budgeting. Kevin is the founder & CEO of Illumint, a virtual financial planning firm specifically designed to help couples and young families with their financial decisions.
Plunging Rates Spell Opportunity for Student-Loan Borrowers
Wall Street Journal
Author Anne Tergesen and Josh Mitchell write:
"The rates on new federal student loans issued to undergraduates for the coming school year could fall by about 2.5 percentage points to an all-time low of just below 2%, according to Mark Kantrowitz, vice president of research at Savingforcollege.com. Interest rates for graduate students and parents are likely to hit new lows too, he said.
Declines in yields on U.S. government bonds, caused in part by the Fed’s reductions in short-term interest rates to near zero, are driving interest rates down on many types of consumer loans.
'The economic impact of this disaster of a virus may keep interest rates low for people, which is a silver lining if you are a debtor,' said Heather Jarvis, an attorney who teaches financial professionals about student loans.
As a result, borrowers with outstanding student loans—federal or private—may be able to significantly reduce the interest they will pay over the life of those loans by refinancing in the coming weeks, although they should carefully consider the trade-offs."
[Read the entire article over at the Wall Street Journal]
Should Feds Make Students' Loan Payments During Crisis?
Inside Higher Ed
Author Kery Murakami writes:
"The idea of sending people direct payments is being discussed as part of that effort. Senate Republicans and Trump have said that the new measure will be substantially larger, perhaps a $1 trillion package. Lobbyists familiar with the discussions of what will be in that package describe them as 'fluid.'
Politico on Wednesday reported that Republican education committee chairman Lamar Alexander briefed Republican senators on the idea of deferring student loan repayments for as much as three months, but spokesmen for Alexander and McConnell did not give further details of what's being considered.
That would come on top of Trump's announcement last week that he will be waiving the interest on federal student loans. However, student aid experts have said it doesn’t appear that the proposal would lower how much borrowers have to repay each month. Some of those borrowers may be dealing with job losses and reduced incomes as states and cities order the closure of restaurants and other businesses to contain the spread of the virus.
A short-term break from monthly payments would likely be acceptable to right-leaning policy experts, 'at least, as long as it is deferment and not some sort of forgiveness,' said Neal McCluskey, director of the conservative Cato Institute’s Center for Educational Freedom.
'A lot of people may struggle to repay through no fault of their own -- and wonks on the right, I think, see a big upside, with no long-term downside, as long as the loans are eventually repaid,' he said. 'It is a reasonable accommodation while many people are essentially forced out of work in order to slow the spread of the disease.'”
[Read the entire article over at Inside Higher Ed]
Why student loans are a kind of debtor’s prison, and what needs to change
Author Liz Weston writes:
"The reality is that getting student loans erased in bankruptcy, while technically possible, is so hard and expensive that few people try; even fewer succeed. Without intervention by Congress and a change of heart at the Education Department, struggling borrowers will continue to be trapped in a virtual debtor’s prison: unable to pay what they owe and unable to move on with their lives.
Taxpayer money is being wasted, as well. ECMC has a long history of aggressively opposing student loan discharges, even when there’s little hope of recovering any money. Among other cases, ECMC has notoriously fought bankruptcy relief for a woman diagnosed with pancreatic cancer; a formerly homeless woman with mental illness subsisting on Social Security disability payments; and, in the case of Navy vet Kevin Rosenberg, the subject of Morris’ ruling, a man whose basic living expenses exceeded his income.
Obviously, walking away from student loan debt should never be easy. But getting relief from unpayable education debt should never have become this hard.
That was the consensus of an expert group of bankruptcy judges, lawyers and scholars who studied the issue and made their recommendations public last year. The American Bankruptcy Institute’s Commission on Consumer Bankruptcy suggested changes judges could make to help more borrowers, but real reform will require new laws and a more sensible, cost-effective approach by the Education Department."
[Read the entire article over at Marketwatch]