Congress this year may reauthorize the Higher Education Act, the primary law governing federal higher education programs such as federal student loans.
Reauthorization is an opportunity for policymakers to evaluate existing legislation, make improvements, add new programs and review funding levels.
Multiple lawmakers have introduced bills that would directly or indirectly touch federal student loans. Some of these proposals could end up being included in the overall reauthorization bill – but others might not go anywhere.
Here’s a roundup of some of the most discussed pending legislation and a look at how it would affect student loan borrowers of yesterday, today and tomorrow.
[Get information and advice on borrowing for school in the student loans center.]
• Federal Student Loan Refinancing Act: This bill would allow student loan borrowers to refinance any government student loans with interest rates higher than 4 percent into fixed, 4 percent loans. Roughly nine out of 10 federally backed loans could see action under the bill.
This bill could affect existing student loan borrowers both in school and already in repayment, as well as potentially future borrowers if federal student loan interest rates rise above 4 percent. Currently, subsidized Stafford student loans are at 3.86 percent, but all other federal education loans are above 4 percent. Federal education loan interest rates are reset every July 1.
• Protect Student Borrowers Act: This proposal would require colleges and universities with student loan default rates exceeding certain thresholds to pay a percentage of the amount their defaulted student borrowers owe.
This could benefit past, present and future borrowers. The school fines would be funneled into a fund to help prevent student loan delinquency and default prevention, or rehabilitate existing defaulted student loans. A portion of the revenue would also be used to offset any future shortfalls in funds for the federal Pell Grant.
[Understand how student loan defaults can affect tax refunds.]
• Simplifying Access to Student Loan Information Act: This act would strengthen the National Student Loan Data System to include private loan information and give students comprehensive access to and a better understanding of debt and repayment options.
Specifically, the legislation would establish a competitive five-year pilot grant program to encourage nontraditional, personalized outreach to student borrowers in an effort to encourage better communication, and ultimately lead to the development of suggested best practices for reducing default, forbearance and deferment rates.
This could mean a great deal for borrowers who are in school, out of school or going to college in the future. Programs previously developed with federal funding through the Department of Education have demonstrated that proactive outreach and communication to student loan borrowers can reduce default rates by as much as 47 percent.
• Student Loan Borrower Bill of Rights: This bill seeks to increase disclosure requirements and protections, primarily for private student loan borrowers. It would extend many of the disclosures currently required on federal education loans to private student loans.
This bill is aimed at past, present and future borrowers, as it would require a number of new notices to borrowers throughout the loan origination and repayment process.
[Find out what education tax benefits are available for families.]
• Student Loan Fair Prepayment Act: This proposal would require extra student loan payments, known as "prepayments," first be applied to the principal of the loan with the highest interest rate, unless the borrower requests otherwise. Currently, payments are applied first to fees and interest with principal being last on the list.
This legislation would significantly change how prepayments are applied and could really affect borrowers' balances and how much interest they accrue over time.
Whether any of this legislation will be included in the next reauthorization is anyone’s guess. Reauthorization typically occurs every five years or so, but it's not uncommon to have delays of a year or longer.
And as the last few years have shown, Congress is deeply divided and the passage of any legislation has been an uphill battle. If you like any of the bills above, get in touch with your representative and ask them to support it, and stay with the Student Loan Ranger for any updates.