United States Senator Bill Nelson, D-FL, has proposed a bill that would allow students relief from their student loan debt. The senator’s intentions were revealed in early July after a federal interest rate hike.
Nelson proposes capping student loan rates at 4% to help counteract rising federal interest rates.
The current rate cap is 8.25%. Nelson’s proposal will also allow borrowers with preexisting loans that exceed 4% to be able to refinance their loans to a lower interest rate. Refinancing isn’t allowed under current law, as rates remain fixed under law.
Student loan debt has soared to over $1.3 trillion dollars, trailing only mortgage debt.
There are student loan refinancing services available, but government loans cannot be refinanced, requiring students to go to a third-party lender that will provide an additional loan.
Nelson states, “If we really want to make higher education more accessible in this country, we have to make it more affordable.” The senator continues, “If you can get a home loan at 4 percent, why can’t students get an education for the same rate?”
Subsidized and unsubsidized loans have risen to a fixed rate of 4.45%, hitting their highest level since July 2014. Unsubsidized loans for grad students have been increased to 6%, while PLUS loans for undergrad students has been increased to 7%.
Student loan interest rates were increased 0.69% based on the 10-year treasury note auction in May. The auction resulted in a high yield of 2.40%, which is added to the fixed margin rate of 2.05% to provide the new interest rate of 4.45%.
Nelson is also proposing the removal of processing fees for federal student loans.
Processing fees for loans are 1.069% for new subsidized and unsubsidized loans. PLUS loans have an even higher processing fee of 4.276%, with the processing fee taken out of the total loan. Students who take out a $10,000 loan will pay $427.5 in processing fees out of their direct loan.
The figure leaves the student with just $9,573.4 for their tuition based off of the current PLUS processing fee.
Nelson’s removal of the processing fee will help save students thousands of dollars in loans over the long-term for the PLUS loan. Nelson is also proposing a cap on interest rates for graduate students at 5%, while rates for parent loans, or PLUS loans, would be capped at 6%.
Student loan debt impacts 43 million Americans, with the average student loan debt for a four-year degree at $24,000.
Nelson visited FSU and Florida’s A&M University to garner support for his bill. He spoke to Joshua Plummer, a student with a master’s degree that will be graduating in August. He will graduate with $46,000 in debt.
Nelson spoke to more than half a dozen students on July 14 and plans to take their testimony back to Washington to gain support for his proposed bill.
Student loans taken out between July 1, 2006 and July 1, 2013 have interest rates of 6.8%. Current law allows undergraduate loans to have an interest rate as high as 10% and graduate loans to have rates as high as 10.5%.