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Senator Calls for Lower Federal Student Loan Rates

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There has been considerable discussion in Washington, D.C., during the past few years about what the government should do about the interest rates on federal student loans. Now, a new suggestion could provide significant savings for those seeking such financing.

While there has been discussion about whether to keep the rates at 3.4 percent, or allow them to double to 6.8 percent, Sen. Elizabeth Warren (D-Mass.) suggested that they should bear the same interest rates to which major financial institutions have access, according to a report from the Huffington Post. In her first bill introduced to Congress, Warren said that federal student loan interest rates should be tied to those for the Federal Reserve Board’s discount window, which is currently 0.75 percent.

“Every single day, this country invests in big banks by lending them money at near-zero rates,” Warren told the site. “We should make the same kind of investment lending money to students, who are trying to get an education.”

Research from the Federal Reserve Bank of New York shows that the average amount of student loan debt carried by people under the age of 25 nationwide has nearly doubled from 2003 to 2012, rising to $20,326. That added debt makes it far more difficult for consumers to take out home or auto loans, which in turn negatively impacts economic growth. Moreover, the problem might be getting worse, because research suggests that the average college graduate in 2011 actually owed more than $26,000 in student loans.

Warren noted that the bill is designed to not only help students out from under the potentially massive and growing debts they rack up in an attempt to get a college education, but also to raise questions about why banks can obtain far lower rates than average Americans, the report said. She is also hoping that students will rally around the legislation and urge their Congressional representatives to support the bill.

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In addition to student loan debts, the average college graduate also leaves school with significant burdens on other types of credit as well. For instance, many may carry thousands of dollars in credit card debt, as well as sometimes-sizable auto loans, and all these may combine to make financial independence more difficult to achieve.

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  • Vicky Perez

    I have a relative who graduated in 2005 and has consolidated her debt @ 6.00%. She owes $28,000.00. Is there any way you think she can get a better rate? Maybe even get a partial forgiveness? She is out of work and has been on/off working for the last 3 years

  • Mike

    Vicky: I just went through a review of my wife’s loans and did some consolidations. I worked with Bank of North Dakota (we live in ND but they do service non-ND residents/students). They have a DEAL Loan that can consolidate private loans at either a fixed or variable rate (there is a fee and higher rates if you are a non-ND resident or non-ND student, but the rates would still have been lower even then compared to my wife’s Wells Fargo loans). I asked about refinancing both of our federal loans, and she said that Federal loans are able to be flat out refinanced like people do with a mortgage. They are trying to get the gov to let them. I just read an article that linked me here and that was talking about the hundreds of millions that the Dept of Education makes off of federal loans, so I guess good luck with them allowing banks to refinance and take over those loans and cut into the gov’s revenue.

    Concerning being out of work, I don’t think anyone should be out of work. You can easily make $40k+ here in ND delivering pizzas or serving in the evenings, and that frees up your days for interviews and job searching. You should advise her to find an evening job, regardless of whether or not it’s less than ideal, and keep her income coming in. She also needs a written, detailed budget too if she doesn’t already have one, and to look hard at her expenses and what she can cut. I say all this because I’m assuming if she’s not working, she has overall money problems. You both should check out Dave Ramsey and google Student Loan Services: BND. Best of luck!

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