Bill Overview
Title: Zero-Percent Student Loan Refinancing Act
Description: This bill establishes temporary refinancing programs for federal and private student loans. Specifically, the bill establishes a program through which the Department of Education (ED) must make interest-free refinancing loans to borrowers of federal student loans from August 1, 2022, through December 31, 2025. The bill requires ED to automatically refinance Federal Direct Loans and notify each borrower of the refinancing. Borrowers who have other types of eligible loans (i.e., Federal Family Education Loans, Federal Perkins Loans, and certain health profession and nursing loans) must apply for refinancing. The bill also creates the Federal Direct Refinanced Private Loan to allow certain borrowers to refinance their private student loans. Borrowers must apply for refinancing between August 1, 2022, and December 31, 2025.
Sponsors: Sen. Whitehouse, Sheldon [D-RI]
Target Audience
Population: People with federal and private student loans in the USA
Estimated Size: 45000000
- This bill targets individuals with existing federal and private student loans, particularly those with outstanding loan balances during the specified refinancing period.
- The bill will have a direct financial impact on borrowers by temporarily reducing interest payments to zero on refinanced loans, decreasing their overall repayment amounts.
- Federal student loan borrowers will automatically benefit if their loans are Direct Loans, while others must apply, impacting their engagement with the program.
- Private loan borrowers must apply within the specified timeframe for refinancing under the new federal terms, affecting their ability to manage and pay off their education debts more effectively.
Reasoning
- The policy targets individuals with both federal and private student loans, aiming to alleviate financial burdens by offering zero-interest refinancing options. This will temporarily decrease monthly payments and total repayment amounts, directly impacting wellbeing by improving financial security.
- The population impacted includes a wide range of borrowers varying in age, career stage, and loan amount. Younger individuals just starting their careers might see a greater long-term impact compared to older individuals who may already be close to full repayment.
- This simulation includes a mix of individuals significantly impacted, as well as some with minimal impact, to understand the distribution of benefits. Individuals without student loans are included to measure the policy's reach relative to societal demographics.
- Budget constraints mean that not all eligible borrowers may benefit equally or choose to refinance, with onboarding likely prioritized for those with higher loan balances.
Simulated Interviews
Junior Marketing Analyst (New York City, NY)
Age: 24 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 4.0 years
Commonness: 14/20
Statement of Opinion:
- The policy would significantly reduce my monthly loan payments, allowing me to save more each month.
- Refinancing to a zero-interest loan is especially appealing as I try to establish financial independence early in my career.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 6 | 5 |
Software Developer (Los Angeles, CA)
Age: 31 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 4.0 years
Commonness: 10/20
Statement of Opinion:
- Refinancing my private loans at zero interest would decrease my total debt significantly over time.
- While savings are appealing, the application process might be cumbersome.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 6 | 6 |
Teacher (Austin, TX)
Age: 45 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 12/20
Statement of Opinion:
- Interest savings could help manage family expenses, especially as my kids go to college.
- I plan to apply for refinancing as soon as possible to make the most out of it.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
Freelance Graphic Designer (Chicago, IL)
Age: 29 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 4.0 years
Commonness: 11/20
Statement of Opinion:
- Zero-interest could lower stress related to fluctuating income and loan payments.
- It's crucial to keep monthly payments predictable despite my irregular income.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
Legal Assistant (Atlanta, GA)
Age: 50 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 1.0 years
Commonness: 8/20
Statement of Opinion:
- The policy won't make much difference to me because I'm almost done paying off my loans.
- I support it, though, since it might help people just starting to repay.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 5 | 5 |
Nurse (San Francisco, CA)
Age: 38 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 6.0 years
Commonness: 12/20
Statement of Opinion:
- The policy will greatly enhance my ability to pay down debt sooner, reducing financial strain.
- Improved financial health could lead to better work-life balance.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 5 |
| Year 2 | 8 | 5 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
Small Business Owner (Miami, FL)
Age: 62 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 14/20
Statement of Opinion:
- This would not affect me personally, as I have no student loans.
- I believe efforts should focus more on education cost reduction in general.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Healthcare Administrator (Seattle, WA)
Age: 27 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 4.0 years
Commonness: 11/20
Statement of Opinion:
- Eager to see benefits of refinancing at zero interest.
- The chance to accelerate debt repayment plan is very valuable.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
Engineer (Denver, CO)
Age: 34 | Gender: male
Wellbeing Before Policy: 9
Duration of Impact: 0.0 years
Commonness: 13/20
Statement of Opinion:
- This policy won't benefit me directly.
- Hopeful that it will create wider social benefits by reducing peers' debt loads.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 9 | 9 |
| Year 10 | 9 | 9 |
| Year 20 | 9 | 9 |
Research Scientist (Boston, MA)
Age: 42 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- The policy offers relief by cutting interest payments, which is crucial to my financial planning.
- Supports my efforts in pursuing impactful research without the distraction of financial stress.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 8 | 5 |
| Year 5 | 8 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
Cost Estimates
Year 1: $3000000000 (Low: $2800000000, High: $3200000000)
Year 2: $4000000000 (Low: $3700000000, High: $4300000000)
Year 3: $4500000000 (Low: $4200000000, High: $4800000000)
Year 5: $5200000000 (Low: $4900000000, High: $5500000000)
Year 10: $6000000000 (Low: $5700000000, High: $6300000000)
Year 100: $10000000000 (Low: $9500000000, High: $10500000000)
Key Considerations
- The size of borrower uptake of the refinancing offer critically influences the exact costs incurred.
- Market reactions and borrower credit risk assessments may be affected by a substantial shift of private loans to federal ownership.
- Coordination with lenders for private loan conversion poses operational and compliance challenges.
- Inflationary pressures may alter baseline projections for program borrowing and reallocation costs.