New York, NY – As President Obama prepares to deliver his sixth State of the Union address on Tuesday, U.S. Senator Kirsten Gillibrand (D-NY) was joined today by New York City students, graduates and the New York Public Interest Research Group’s (NYPIRG) Higher Education Program Coordinator Kevin Stump in urging the President to commit to help tens of millions of graduates saddled with soaring debt by allowing them to refinance their federal student loans. With student loan debt at approximately $1.2 trillion, surpassing auto loan and credit card debt, and New Yorkers facing sky-high student debt at an average of more than $27,000 per graduate, Senator Gillibrand urged the President to make refinancing student loans one of his top priorities and renewed her push to pass legislation to reduce student debt on federal loans by allowing millions of graduates and borrowers currently repaying their federal student loans the ability to refinance at a lower interest rate. This legislation would impact nearly 9 in 10 federal student loans nationwide.
Graduates are facing a tougher time repaying their college loans as student debt nearly tripled since 2004, with New York graduates facing an average debt of $27,310 in 2012, according to the Federal Reserve Bank of NY. Over the past several years, more young borrowers have fallen further behind on their student loan payments. Nationwide, almost 12 percent of all student debt was delinquent by the end of last year, up from 7.5 percent in 2007, according to the Federal Reserve Bank of New York. Statewide, nearly 11 percent of New York graduates, or 24,800 borrowers, defaulted on their student loans between 2009 and 2012, or were more than nine months behind on their payments, per the Department of Education. Here in New York City, an average of 15.5 percent of graduates, or approximately 141, 000 borrowers, were more than three months behind in paying their student loans at the end of 2012, up from 13.1 percent the previous year. Senator Gillibrand is pushing for legislation that will help provide relief to graduates currently in repayment.
“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,” said Senator Gillibrand. “I urge 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.”
“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,” said Stump.
“College costs have skyrocketed, and more students have turned to borrowing in order to finance their degree,” Anne Johnson, Executive Director of Generation Progress. “But today, many are struggling. We applaud policy solutions that bring much-needed relief to millions of existing borrowers and boost our economy.”
To address the burden faced by graduates struggling to repay their federal student loans, Gillibrand’s legislation, also known as the Federal Student Loan Refinancing Act, would enable individuals who have an interest rate above 4 percent to refinance their federal loans at a lower, fixed interest rate of 4 percent. Here in New York City, the average debt of graduates with federal loans from the 2010-2011 school year is more than $20,000.
Since a majority of federal student debt is set at an interest rate higher than 6 percent, Senator Gillibrand’s legislation would bring much needed relief to millions of New Yorkers, significantly impacting the vast majority of the 2.7 million borrowers in New York and the 40 million borrowers nationwide. Gillibrand’s bill would lower the interest rates for nearly 9 in 10 federal student loans nationwide.
For example, a New York graduate who has $26,000 in loans and pays 8 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 Gillibrand’s legislation, a graduate with $26,000 in loans who refinances to a 4 percent interest rate for 20 years would save an estimated $14,370 in interest payments.
According to a Congressional Budget Office report, the federal government makes 36 cents in profit on every student-loan dollar it puts out, and estimates that student loans will bring in $34 billion this year alone. A Center for American Progress report reveals that refinancing would increase disposable income nationwide by an estimated $14.5 billion in the first year alone. Interest rates are at historic lows, with homeowners, corporations and localities refinancing their debts. However, students and families who take out loans to pay for higher education are getting left behind in the refinancing boom. Senator Gillibrand’s legislation would provide these graduates with a six month window to reduce their rates on all federally-owned student loans.