California Lawmakers Propose Re-Financing Private Student Loans

“College graduation is supposed to be synonymous with opportunity and prosperity and not a detour into a modern-day debtor’s prison.” – California Treasurer John Chiang

College is Expensive and Risky

College is expensive, that is an undeniable, indisputable fact. To make things worse, student loans can be completely unaffordable and can have long term, crippling effects on your credit. In fact, it is estimated that students in America owe nearly $1.5 trillion in student debt. The average amount of debt carried by a graduate nationwide is about $28,000 dollars. In California, it is estimated that over half of college graduates carry some student debt.

This session, California has seen a legislative push to make college more affordable and more accessible to prospective students. These include proposals to lower or freeze tuition, for free community college for a year, student loan transparency, and lower textbook costs. In addition, State Senator Ben Allen and Treasurer John Chiang are pushing Senate Bill 674, known as the ReLIEF (Loan Improvement for Enhanced Futures) Act.

The ReLIEF Act

The ReLIEF Act puts aside $25 million in a fund that will be made accessible to private student loan agencies. In effect, this money would help secure a small percentage of the loans for students who want to refinance their student loans. The authors of the bill believe that this will encourage lenders to offer a lower interest rate to students. As written, the senate bill applies to the following people:

  1. Graduates who have $25,000 or less in student debt;
  2. Who are currently employed;
  3. Who have received a college degree, such as a technical degree, an associates degree, or a bachelor’s degree; and
  4. Who want to refinance their loan.

If people meet this criteria, they may apply to refinance their loan. If their application is accepted, the state would guarantee the lender ten percent of the value of the loan as security for loan. The idea is that banks would feel more comfortable agreeing to refinance at a lower interest rate, since the loan is partially guaranteed. In his statement, Treasurer Chiang stated that “Student loan debt is a toxin to the American dream. It prevents people from buying homes, starting a business or saving for retirement.”

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