As Congress takes up the task of reauthorizing the Higher Education Act (HEA) this year, one of its major challenges will be deciding on what changes to make to the Federal student loan programs. Americans are now carrying over $1.3 trillion in outstanding Federal student loan debt, according to the most recent statistics published by the Federal Reserve, which now accounts for more than one-third of all of the consumer credit outstanding in the U.S.
However, the Interest rates on outstanding Federal student loans greatly exceeds market interest rates for other forms of credit. This is because while market interest rates have fallen to historic lows over the last several years, the interest rates charged on Federal student loans are still largely determined by the political process. In fact, many students and parents who borrowed for college over the last decade are subject to interest rates as high as 8.6 percent. These high interest rates only further increase the overall cost of an already expensive higher education.
The Federal student loan programs currently do not provide a means for borrowers to get relief from high interest rates or reduce their total borrowing costs. While the current Direct Consolidation Loan program can lower monthly payments by extending the loan term, the borrower’s interest rate is actually increased slightly when using this option, and they are charged thousands of dollars more in interest by the time the loan is finally paid off. Likewise, the various income-driven repayment options available artificially lower monthly payments to a percentage of the borrower’s income, butt slow down repayment of the overall debt and add extra interest costs. In many cases, these plans result in unpaid monthly interest being added to the outstanding debt that the borrower owes at the end of each month.
Providing borrowers a new option to refinance Federal student loans with private lenders at lower market-based interest rates, is one of the many HEA issues that the McKeon Group has been advocating for on behalf of its clients this year.
“Lawmakers have been pondering changes to the HEA for nearly five years now and as former policymakers ourselves we understand the difficult challenges they face,” said Jeff Andrade, who leads the McKeon Group’s practice in higher education. ”Moving forward and effectively addressing today’s challenges requires not only lobbying expertise, but also deep policy experience, knowledge of the budget, scoring, and appropriations processes, and strong relationships across the new political landscape — all of which we have been able to bring to bear on behalf of our clients.”