This one thing could change the way you pay off student loans.
Here’s what you need you to know.
College Affordability Act
The College Affordability Act is a new legislative proposal that could reshape the future of student loans. The legislation, which was introduced by House Democrats in October, promises to increase federal student aid and fight the rising cost of college. The College Affordability Act is expected to cost $400 billion over 10 years and seeks to change the education landscape in several ways:
- Refinance Student Loans
- No Origination Fees
- Simplify Student Loan Repayment
Refinance Student Loans
The federal government does not refinance student loans. If you want to refinance student loans, you can refinance your federal student loans, private student loans or both with a private lender. Student loan refinancing helps you get a lower interest rate, lower your monthly payment and pay off student loans faster.
The College Affordability Act would enable borrowers to refinance their student loans to today’s interest rates, which have dropped to as low as 1.81%.
Eliminates origination fees
When you borrow federal student loans, the government charges you an origination fee, which is charged as a percentage of the amount you borrow and is added to your student loan balance. In contrast, most private student loan lenders do not charge an origination fee. Under the College Affordability Act, origination fees for federal student loans would be eliminated, which would save you money.
Simplifies Student Loan Repayment
Today, the latest student loan debt statistics show that there are more than 44 million borrowers who collectively owe $1.6 trillion of student loan debt. If you have federal student loans, there are multiple student loan repayment plans. Each have different requirements, which may be complicated for student loan borrowers to follow. Income-driven repayment plans, for example, base your student loan payments on your family size and a percentage of your discretionary income, and then offer student loan forgiveness after 20 or 25 years.
The College Affordability Act would replace the current student loan repayment plans with two plans: one fixed student loan repayment plan and one income-based repayment plan. Fewer plans could simply student loan repayment and avoid confusion. Borrowers also could automatically re-certify their income each year, which would save time from the current task of completing annual paperwork.
Other Key Issues
The key question will continue to be: What role with the federal government play in student lending? How will taxpayers be impacted?
Two areas that do not appear in The College Affordability Act:
- Free College: There is no mention of “free college.” Through federal-state partnerships, tuition would be reduced at public colleges and universities. Federal funding would be allocated to states that make community college tuition-free.
- Cancel Student Loan Debt: There is no mention of student loan debt cancellation.