Wisconsin Student Loan Refinance Law Deeply Flawed

Wisconsin Student Loan Refinance Law Deeply Flawed

By |February 12th, 2014|

Wisconsin lawmakers, in a fit of rage about the onerous nature of student loans, are pushing for a new way for the state to make money and help borrowers. But does it make sense for borrowers?

Dubbed the “Higher Ed, Lower Debt” bill, the measure was introduced by State Rep. Cory Mason as a way to ease student-loan struggles got a hearing Monday in the state Assembly.

The law proposes to create a state authority to refinance federal student loan debts, as well as to extend tax benefits to those who borrow for their educational needs.

For the life of me, I can’t figure out why this law is a good idea.

First, Who’s Going To Fund It?

First, it’s useful to note that federal student loans carry an interest rate of just 3.68%. In order for Wisconsin to lower payments, they’d need to refinance those loans at a lower rate than 3.68%. The state would have to sell bonds to finance the lending at below four percent, which doesn’t seem possible given the fact that such bonds wouldn’t be backed by the state.

It’s unlikely that investors are going to buy those bonds because, without state backing, the risk of loss is too great to counterbalance the low rate of return.


Next, Who’s Going To Go For It?

But let’s pretend that investors look at these bonds and decide that they’re a good deal. What student in their right mind would go for such a deal?

Federal student loans offer a number of repayment options. You’ve got your standard 10-year repayment, your income-based repayment, Pay-As-You-Earn, and more.

Federal loans also offer ways to eliminate your student loans if you’re disabled or work in certain fields.

Once you refinance them, those opportunities disappear. All flexibility is out the window, leaving the borrower on the hook without any escape valve.

Full Of Sound and Fury

Wisconsin lawmakers are putting a consumer-friendly face on the law, but I’d be shocked if anyone on the inside expected this to pass into law.

And once it fails, someone can stand up on Election Day and proclaim himself or herself as a friend of the student loan borrower. They get to point a finger at the other side and call them bad names, and brand them as an enemy of the people.

Makes for good politics and a good story. But if lawmakers want to effect change in the way that people cope with student loan debts, this isn’t the way to go.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.