With student loan debt now viewed as the No. 1 obstacle preventing young people from buying homes, Congress is moving fast to get legislation in place that will hold down future student loan rate hikes.
By an 81 to 18 vote, the Senate on Thursday passed a bipartisan bill that would tie student loan rates to financial market interest rates. The bill, the Student Loan Fairness Act, has the support of President Obama and is expected to pass in the House.
‘This compromise is a major victory for nation's students,’ Obama said in a statement, following the Senate vote. He said the plan would save undergraduates ‘an average of more than $1,500 on loans they take out this year.’
The plan would replace the previous fixed-rate subsidized federal student loan program that expired July 1 as a result of a dispute between President Obama and congressional Republicans over the details. The expiration of that measure resulted in a near doubling of student loan rates – however, under the bill passed in the Senate Thursday, the revised rates would be applied retroactively to all loans issued since July 1.
Aside from the legislation pending in the House, U.S. financial regulators on Thursday issued a joint statement urging banks to ‘work constructively’ with private student loan borrowers who are experiencing financial difficulty.
In a joint statement issued by the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency, regulators said they ‘would not criticize’ banks who engage in prudent workout arrangements even if the restructured loans result in adverse credit classifications or troubled debt restructurings.
‘Prudent workout arrangements are consistent with safe-and-sound lending practices and are generally in the long-term best interest of both the financial institution and the borrower,’ the statement read. ‘Current interagency guidance permits prudent workout and modification programs for retail loans, including student loans, and provides that extensions, deferrals, renewals, and rewrites may be used to help borrowers overcome temporary financial difficulties. Institutions that have private student loan workout programs should provide borrowers with information that clearly explains the programs, including eligibility criteria and the process for requesting a modification.’
The measures come just as the real estate market is rebounding and many recent college graduates are weighing their home buying options. A recent survey conducted by the National Association of Realtors found that renters are thinking more about purchasing a home now than in past years, while the number of people who say they prefer to rent has declined.
Still, many Americans face obstacles to homeownership – with student loan debt being a number one concern.
‘Student loan debt is a concern for many consumers in today's market, especially first-time buyers,’ said Gary Thomas, president of the NAR, in relation to the survey. ‘Buyers with student loan debt may find it difficult to access mortgage credit, as well as save for a down payment. Pending mortgage finance regulations requiring higher down payments could also contribute to the already tight lending environment. Realtors are working with regulators to address this issue and are committed to making sure those who are willing and able to own a home have the opportunity to pursue that dream.’