They Won't They Let Education-Loan Debtors Refinance

They Won't They Let Education-Loan Debtors Refinance  - Just about any time I turn on the radio, I hear an ad exhorting people to refinance their loans.  Interest rates are lower than they've been in decades, those ads remind us.  Even some people with less-than-stellar credit--including those whose home mortgages are "underwater" or even in foreclosure--are getting those rates.

It's not only the homeowners who've overpaid for their McMansions who can refinance.  People with credit card debt, even if it's a result of gambling, will be considered for lower interest rates, especially if they have collateral--including homes with "underwater" mortgages!  Car loans aren't exempt from consideration, either.

In fact, there's only one kind of loan for which it's all but impossible to get lower interest rates.  Since you're reading this blog, you've probably guessed what it is:  Federally-guaranteed student loans. 

The government and banks point fingers at each other when it comes to this issue.  The government blames the banks for not wanting to reduce the interest rates on such loans, which are often carried by people who don't have collateral.  The banks blame the Federal government for regulating the interest rates on those loans. 

Of course, both sides don't want to give up the handsome profits they're making.  They also realize that most student debtors are a captive market:  Unlike, for example, credit card holders who can shift their balances from, say, Capital One to Barclays, those who are struggling to pay education loans don't have the option of moving their debts and balances to another credit provider.

Plus, the loans are one of the few areas in which the Government actually makes a tidy profit.  According to the Center for American Progress, these loans are expect to give Uncle Sam over $34 billion in profits this year by financing $864 billion of the $1trillion in outstanding student loans. In the current budget environment, nobody wants to ask the government to cut off such a cash cow.

Most of those loans are saddled with interest rates of 6 percent or more.  According to the CAP, simply applying a rate of 5 percent to all student loans that currently have interest rates higher than that will save borrowers around $14 billion. 

Then maybe, just maybe, they could take advantage of those lower interest rates on home and other kinds of loans. And they might start to buy the homes, cars and other things their parents were able to buy without having gone to college and endebting themselves for the privilege.