July 27, 2003
Congress debates revising rules on refinancing
By PAUL M. KRAWZAK
Copley News Service˙
WASHINGTON ó Several bills in Congress would lift restrictions on how often and with whom former college students can refinance their government-backed student loans.
Supporters say the ex-students should be able to shop for low interest rates.
Opponents say the changes could dry up funds for student loans by making returns more difficult for lenders to predict.
Hereís a summary of the pros and cons:
n Soaring tuition increases in recent years have pushed average student debt to $17,000 or more, underlining the need for debt relief.
n Refinancing gives student borrowers an alternative to poor service provided by their original lenders.
n Even if refinancing increases the cost of the loan program to the federal government, itís worthwhile because students paying off loans will return the money they save in the form of higher taxes they pay and spending that stimulates the economy.
n Though refinancing benefits students, it increases the cost to taxpayers. The government must pay more to make up the difference between the lower rates paid by students and the higher rates guaranteed to lenders when interest rates rise.
n Increased consolidation and refinancing raises costs for lenders while creating uncertainty about how much loans will generate. The uncertainty would destabilize the loan market, reducing the number of lenders willing to offer student loans. That would hurt borrowers in the long run.