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New Bill Aims to Reduce Student Loan Rates

Jul. 30—An estimated 100,000 Ohioans could see relief from costly student loans through legislation introduced yesterday by U.S. Sen. Sherrod Brown.

Brown’s bill would allow college graduates and others who are no longer enrolled to swap their private loans for federal loans with lower interest rates.

“Too many Ohioans are still paying for college decades after they graduate — through private loans with fluctuating, high interest rates,” said Brown, an Ohio Democrat.

Brown’s “debt swap” proposal would use unsubsidized Stafford loans, which carry a fixed interest rate of 6.8 percent and are not based on financial need. Many private loans carry interest rates of 12 percent to 15 percent, Brown said, and some top 18 percent.

The proposal would not cost taxpayers because the unsubsidized loan program makes money, according to the Congressional Budget Office.

“This is a really creative way to deal with a really big problem,” said Chuck Knepfle, Miami University’s director of student financial assistance.

In 2007, 63 percent of graduates of Ohio public colleges and 75 percent of private universities’ alumni finished school in debt (an average of $21,458 from public schools and $22,737 from the privates.)

More than 25 percent of all U.S. borrowers in 2007-08 took out only private loans. Some did so because they weren’t aware of federal loans, others because federal loans didn’t cover the cost. Last year, Congress increased the federal loan limit by $8,000 to a maximum of $31,000 for a four-year degree.

Brown’s bill would help people who were eligible for the Stafford program but did not use their full allowance.

The Stafford loans’ lower interest rates would make up for any penalties from paying off private loans early, Brown said.

Under the proposal, only people with private loans made before next July would be able to refinance, and they would have until July 1, 2011, to do so.

Kevin Bruns, a spokesman for the Consumer Bankers Association, said the bill offers little incentive for people with private loans with comparable interest rates to switch to a federal loan. He said it also would send a mixed message because another government program encourages private lending.

He questioned whether the program would really save money if a higher proportion of people who make the switch default on their loans.

In the spring, the U.S. Department of Education reported a jump in the student-loan default rate to 6.9 percent from 5.2 percent a year earlier.

Advocates said Brown’s proposal would help the growing number of recent graduates who are saddled under student-loan debts that are higher than they need to be.

David Metz, director of financial aid and veteran services at Columbus State Community College, said the bill would offer a do-over for former students who didn’t get the best loan terms while in school.

epyle@dispatch.com

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