Let’s Look at the Issues

Let’s hear it for Senator Kirsten Gillibrand! She has introduced legislation that would allow millions of college graduates to reduce their debt on student loans by refinancing at a lower interest rate. Furthermore, she has called on President Obama to lead the charge on this effort.

We salute New York’s junior Senator for taking this stance. It’s hard enough in this economy for college graduates to find a job. Reducing their loan repayments can only help.

Make no mistake about it, student loan debt is a huge issue in the U.S. Student debt currently stands at more than $1.2 trillion and is rising. College graduates from New York State average more than $27,000 in debt apiece. Student debt on a national level has tripled in just the last nine years. Making matters worse, almost 12 percent of all student debt was delinquent in repayment last year. Here in New York, 11 percent of graduates defaulted on their student loans between 2009 and 2012. Another 15.5 percent—more than 141,000 student borrowers—were more than three months behind in paying back their student loans.

Statistics like these show why Senator Gillibrand’s proposal merits enactment. But there are other reasons why her proposal makes sense.

“More city graduates and middle class families are burdened by student loans than ever before and are struggling to repay a higher amount of debt than ever before,” Senator Gillibrand said, when speaking about her proposal and urging President Obama to make refinancing student loans a top priority. “Our young people should be able to refinance in the same way that our businesses and homeowners do. We must strengthen our middle class families instead of forcing New Yorkers deeper into debt. Keeping a high-quality education in New York affordable is the right thing to do,” the Senator added.

“President Obama’s call to increase college attainment across the nation should be matched with a call to take on the student debt crisis,” said Kevin Stump, Higher Education Program Coordinator for the New York Public Interest Research Group. “The ‘perfect storm’ of a vulnerable economy, skyrocketing college costs, inadequate state grants, a surge in college enrollment, and a bleak job market has quickly pushed student loan debt to become one of the most threatening social and economic issues we face today. Students, graduates, and families across New York and the nation are looking to the President for his leadership on this issue. He can start by joining Senator Gillibrand in making student loan refinancing a top priority this year.”

Senator Gillibrand’s proposed legislation is called the Federal Student Loan Refinancing Act. It would allow graduates with federal student loans above four percent to refinance at a fixed interest rate of four percent. Since most graduates have accumulated debt over four or more years, often totaling more than $50,000, this kind of legislation would have a very beneficial impact on them, without putting too big a strain on the federal budget. It would no doubt cut down on delinquency and default, which is costing the federal government billions of dollars each year.

According to government statistics, a majority of federal student debt is set at an interest rate higher than six percent. This means that Senator Gillibrand’s legislation would bring much needed relief not only to the vast majority of the 2.7 million student borrowers in New York but also to more than 40 million borrowers nationwide. Her bill would lower the interest rates for nearly 90 percent of all federal student loans nationwide.

Here’s an example provided by Senator Gillibrand’s office: A New York graduate who has $26,000 in loans and pays eight percent interest over 20 years would end up paying more than $52,000 over the life of the loan — over half of which is interest. Under Senator Gillibrand’s legislation, a graduate with $26,000 in loans who refinances to a four percent interest rate for 20 years would save an estimated $14,370 in interest payments. 

The Congressional Budget Office (CBO) reports that the federal government makes 36 cents in profit on every dollar in student loans it puts out. The CBO estimates that student loans will bring in $34 billion this year alone. These figures mean there is plenty of room to help college students.

Interest rates are at historic lows, with homeowners, corporations and municipalities refinancing their debts and saving lots of money. Why shouldn’t students and families who take out loans to pay for college have the same opportunity?

We know that many children of our members rely of federal loans to pay for college. Senator Gillibrand’s proposed legislation could really help! We salute her for introducing the Federal Student Loan Refinancing Act. We pledge our full backing for this sorely needed legislation and we promise you that we will urge other unions and the AFL-CIO to join us in supporting it.