Should Borrowers Be Able to Refinance Their Federal Student Loans? (H.R. 2186)

What is H.R. 2186?

(Updated April 23, 2020)

This bill would change the interest rates for students borrowing through the William D. Ford Federal Direct Loan program, and allow borrowers to refinance their loans. Borrowers would be able to refinance their student loans at any time, which can potentially have the effect of lowering their interest rates and reducing their monthly payments.

Argument in favor

Allowing student loan borrowers to refinance their student loans will lower their payments and let them spend that money in other parts of the U.S. economy.

Argument opposed

Borrowers should know what they're getting into when they apply for the student loans — If interest rates were too high when they signed, they shouldn't have borrowed.

Impact

People who have borrowed student loans through the William D. Ford Federal Direct Loan Program, companies that service student loans, the Department of Education.

Cost of H.R. 2186

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Mark Pocan (D-WI) reintroduced this bill from the 115th (and before that, the 113th and 114th) Congress to allow borrowers to refinance their federal student loans any time a lower interest rate is available:

“Americans now hold more than $1.5 trillion in student loan debt, a staggering amount of debt that restricts Americans’ ability to contribute to the economy and make other major purchases, like buying a home or a new car. We must take steps to help reduce the crushing burden of student debt and allow millions of Americans to refinance their student loans, just like any other borrowers. Students deserve a fair shot at the middle class, not a multi-decade debt sentence. I’m proud to reintroduce the Student Loan Refinancing Act and I hope that my colleagues will join me in supporting this important legislation to bring down the long-term cost of a college degree.”

When he introduced this bill in the 115th Congress, Rep. Pocan said:

“With college debt skyrocketing, Congress should be doing everything it can to help reduce the crushing burden of student debt. The Student Loan Refinancing Act will allow nearly 44 million Americans to refinance their student loans, just like a mortgage or car loan. This bill would bring down the long-term cost of a college degree.”

One Wisconsin Now supports this bill's reintroduction. Annaliese Eicher, One Wisconsin Now's Executive Director, says: 

“Student loan borrowers worked hard to get their education and took on the personal responsibility to pay for it. They should be reaping the benefits of their education, but instead millions of Americans are trapped in the $1.5 trillion student loan debt crisis. The good news is that there are people like Rep. Pocan who get it, and who are doing something about it. Student loan debt has been at crisis levels for too long and it is far past time to for common sense reform, like allowing borrowers to refinance their loans just like you can with a mortgage as Rep. Pocan is proposing."

The American Federation of Teachers (AFT) expressed its support for this bill when it was introduced in the 115th Congress. AFT President Randi Weingarten said: 

“College is an increasingly necessary precondition for 21st-century middle-class jobs, and Americans who want to go to college deserve an affordable, accessible pathway to college. That is why this bill is so important: It provides immediate financial relief to millions of students and families, freeing them from unnecessarily burdensome debt, and makes it clear that student loans should help further students’ lives, not hold them back. President Trump's budget proposals this week curtailing student aid programs—at a time when far too many students incur crippling debt—in pursuit of a higher degree make Rep. Pocan's bill more urgent than ever.”

This bill has 27 bipartisan cosponsors, including 26 Democrats and one Republican, in the 116th Congress. In the 115th Congress, it had 58 bipartisan cosponsors (55 Democrats and three Republicans) and didn't see committee action. Rep. Pocan first introduced this bill in 2013, but the Republicans who held the House blocked consideration of this bill in the 113th, 114th, and 115th Congresses. Last Congress, it was supported by the American Federation of Teachers and One Wisconsin Now.

Of Note: Student loan debt is the second-largest form of consumer debt in the U.S. (exceeded only by mortgage debt), with over 44 million borrowers owing over $1.5 trillion as of 2019, of which $1.4 trillion is federally-owned. Nationally, around two-thirds of students who earn Bachelor's degrees take out loans to help finance their educations, and the vast majority of those loans are originated by the federal government. In 2015, the average undergraduate student borrower left school with $30,100 in student loans — a 4% increase over 2014.

Student loan debt has been linked with the sluggish housing recovery because borrowers can’t afford to make an investment in a home, as well as declining sales of new cars. According to a Rutgers University study, 40% of graduates with college loans delayed making major purchases, such as cars, due to college debt and 25% of graduates put off continuing their educations or moved in with relatives to save money.

Interest rates are currently at historic lows and homeowners, corporations, and state and local governments are taking advantage of this to refinance and reduce their debts. By refinancing their debts, borrowers are able to replace existing debt with a new loan at a lower interest rate, reducing the value of their debt and freeing up income for purchases. However, student loan borrowers have been left out of the refinancing trend.

Allowing students to refinance their student loans could come at a cost to the federal government, as borrowers with good credit would be able to refinance with private lenders, leaving the government's portfolio with a larger proportion of borrowers who are unlikely to repay their loans. Through lost interest payments, this could cost the federal government billions of dollars.

Today, there's no federal refinancing option for student loan repayment. There's only a federal loan consolidation program. 

Media:

• Sponsoring Rep. Mark Pocan (D-WI) Press Release (116th Congress)
• Sponsoring Rep. Mark Pocan (D-WI) Press Release (115th Congress)
• One Wisconsin Now Press Release (In Favor)
• The Badger Herald
  
• The Daily Cardinal
  
• The Student Loan Report
• Sponsoring Rep. Mark Pocan (D-WI) - Student Loan Debt Crisis (Context)
• Congressional Budget Office (Context)