Congressional Democrats introduced legislation on July 27 that would lower student loan interest to 0%, while capping rates for future borrowers. If passed, this would be a huge help to 44 million American student loan borrowers, whose payments and interest are set to resume soon.
Rep. Chellie Pingree (D-Maine), Rep. Joe Courtney (D-Conn.) and Sen. Peter Welch (D-Vt.) introduced The Student Loan Interest Elimination Act, which would immediately eliminate interest rates for Americans with existing federally held student loans, according to a statement.
Specifically, the Zero-Percent Student Loan Refinancing Act would allow student loan borrowers to refinance their federal loans to 0% — all eligible federal FFEL, Direct, Perkins, and Public Health Service Act student loan borrowers could refinance their high-interest loans down to 0% through December 31, 2024. In addition, it would automatically refinance debt for Direct loan holders, according to the statement.
As for the interest rates for future student loan borrowers, they will be based on a sliding scale determined by financial need “with the vast majority receiving a zero percent interest rate and no student getting an interest rate above 4%,” according to a fact sheet. “This sliding scale will disincentivize students from taking out loans that they do not need.”
As students and families are already burdened by the rising costs of college education, the federal government should not exacerbate the problem by making money off borrowers’ federal student loans the legislators said in the statement.
The average public university student who takes out a federal student loan today would pay $7,800 over the standard 10-year period in interest — which represents the difference between making mortgage or car payments, affording medical care, or saving for a stronger retirement, Rep. Courtney said in a statement.
“This bill is particularly important in the wake of SCOTUS’ decision to strike down President Biden’s student loan forgiveness program. Students and families are counting on Congress to act on commonsense solutions to lower the cost of college and my bill will help achieve that goal,” Courtney added.
The resumption of payments is expected to put a dent in the budget of millions of borrowers.
Indeed, a new Empower survey found that to afford their student loan payments, 32% of Americans say they plan to take on more credit card debt. In addition, 58% say they also plan to cut back on discretionary spending and dining out while 31% are considering trading in their and 41% will forgo trips and vacations.
More From GOBankingRates