U.S. Sen. Elizabeth Warren announced on Saturday that she will introduce legislation that would allow existing student-loan borrowers to refinance their debt at interest rates offered to new borrowers in the federal student-loan program.
The announcement of the forthcoming legislation, which she said will be released "in the coming weeks," came during Ms. Warren’s keynote address at a research symposium on student loans sponsored by Suffolk University's Law School and the National Consumer Law Center.
"A graduate student who took out an unsubsidized loan before July 1 of last year is locked into an interest rate of nearly 7 percent," said Ms. Warren, a Democrat of Massachusetts. "Refinancing those old loans would lower the interest rate to 3.86 percent for undergraduate loans, and lower the others accordingly."
The rates are lower now because of legislation approved last summer that ties student-loan interest rates to the financial markets.
For a recent graduate who borrowed the maximum, Senator Warren said, payments would drop by as much as $1,000 a year. The total interest over the lifetime of the loan "would be cut nearly in half."
"This is a common-sense proposal that should not be controversial," Ms. Warren said. "When interest rates are low, homeowners can refinance their mortgages, big corporations can swap more expensive debt for cheaper debt, even state and local governments have refinanced their debts. Students should be able to refinance their federal loans as well."
During her speech, Ms. Warren also said the government should reinstate bankruptcy protections for student-loan borrowers and punish colleges with high student-loan default rates.