Jessica Schmidt, 30, is trying to pay down her student loans, but interest rates make that a struggle.
The graduate student at the University of Wisconsin-Madison is trying to finish a master’s degree in communications while working two jobs to pay off debt from her bachelor’s degree at the University of Wisconsin-Green Bay. Schmidt has paid almost more in interest on one loan than the original $6,000 amount, she said.
“I have made $4,000 in payments and I currently owe $5,700. That makes me cry when I see that,” she said. “That just makes my heart sink and it’s really easy to fall into despair.”
Schmidt is one of millions of borrowers who lawmakers are hoping to help by pushing for a government-subsidized refinancing program. She, along with thousands of other borrowers in the state, collectively hold $24.4 billion in student debt according to a report by the Consumer Financial Protection Bureau released earlier this month. That total amount of student debt nationwide has increased each year since 2003. It now sits at about $1.4 trillion.
A growing, bipartisan group of lawmakers in Washington, D.C., are pushing the government to refinance student loans, saying it would be a money-maker, while bringing needed relief to student loan borrowers. Bills that would allow federal loans to be refinanced at lower, fixed interest rates have circulated throughout Congress through the last three sessions but there has been no action on them. There is no sign of any action on them in this session, either.
Student loan borrowers, whether they have federal or private loans, can currently apply to refinance loans through private banks or credit unions and several private online refinancing companies. However, the rates available vary widely depending on the size of the loan, payment history of the borrower and credit score, among others. Advocates of federal government refinancing say the private market does not offer low enough interest rates to substantially decrease borrowers’ debt.
If the federal government did refinance student loans, borrowers would be able to apply for lower interest rates on their loans on a set repayment term. The federal government would buy the loans, then reissue them with a lower rate.
Several members of Wisconsin’s Congressional delegation are supportive of the idea. Democratic U.S. Rep. Mark Pocan has introduced a bill that would allow student loan borrowers to refinance their loans any time a lower finance rate is available. He first introduced the bill in 2013 after learning about the implications of student debt from One Wisconsin Now, a liberal advocacy group, which has done in-house research and has been an early advocate of refinancing and policies that can help borrowers. This session’s version has 50 sponsors from both parties.
“We saw that there were a lot of people who were paying a 6.5 percent interest rate when you’re buying your house and car at a much smaller interest rate. It didn’t make sense that you’re paying more for a student loan,” he said. “I think we’ve done everything else we can to try to get this to move forward.”
Republican U.S. Rep. Glenn Grothman signed on to Pocan’s bill this year, one of a handful of Republicans. The student loan debt issue is “really a mess,” he said, and needs to be addressed.
“I like refinancing. I don’t know how anybody could be opposed to it. The reason they’re opposed to it is that the government makes money on these students right now and (then is) overspending on everything under the sun,” Grothman said. “Well, let me tell you something, don’t spend so much on other things and you’d be able to help out these students.
"This should be the priority. Right now the clock is ticking on the lives of the people who have these debts. You’re bleeding people. It’s just criminal,” he said.
As public refinancing at the federal level stalls, Democrats in Wisconsin have proposed creating a state-based refinancing authority that would allow borrowers to refinance loans at lower rates and also deduct student loan payments from their income taxes. That effort promoted by One Wisconsin Now hasn't gone anywhere in the Legislature.
“We’ve only been met with resistance at the state level here,” said Analiese Eicher, the program director for One Wisconsin Now, which also launched a national coalition to address student debt in 2014.
“For me, it is a struggle why folks in the state Legislature wouldn’t jump on an opportunity to help average Wisconsinites who have student loans and actually make some money off of it,” she said. “It’s an income the state could then invest in our university, STEM, our technical college system, invest in financial aid for students.”
Connecticut has considered creating a state-based refinancing authority and Minnesota has already created one. Gov. Scott Walker and Republican lawmakers have opposed it in Wisconsin, arguing it would be a needless expansion of government and that private industry is more suited to address refinancing.
"I think it makes a much more compelling case if our state’s financial institutions can be the ones people turn to as opposed to putting pressure on the state government to create something that really is not our business or our mission," Walker said at an event promoting Wisconsin’s credit unions in January.
There are a handful of credit unions in the state that offer refinancing student loans, though several, including Summit Credit Union and Dane County Credit Union, partner with for-profit online companies to make the loans.
Less than 2 percent of banks in the state offer student loans, according to the Wisconsin Bankers Association. The state has a list of private lenders that offer in-school student loans and refinancing.
Refinancing student loans has become a profitable and popular business for UW Credit Union. The nonprofit credit union started refinancing student loans in 2013 after seeing demand from its members. It started making in-school loans to students in 2006 after being asked to by the UW-Madison. That business has continued to be popular, said Mike Long, UW Credit Union’s chief credit officer.
The refinancing portion of its loan business is growing, he added. Last year, it lent $40 million in both in-school loans and refinancing. It will refinance student loans and issue new in-school loans to members and non-members regardless of where they live. UW Credit Union has $156.8 million in both in-school and refinance loans on their books, with $41.7 million in refinance loans.
“That (refinancing) part of our business is now a larger part of our yearly origination total than our in-school product. There is so much opportunity to save members money by refinancing their student loans,” Long said. “It’s been a really popular product with our membership and prospective members who look to us.”
But One Wisconsin Now and Pocan contend that private refinancing companies and nonprofit credit unions don't offer low enough interest rates that actually help students. Companies like SoFI, Lending Tree and local nonprofits like UW Credit Union advertise rates as low as 3 percent, but a narrow subset of borrowers actually qualify, they said.
Borrowers with federal loans also give up certain protections and flexible repayment options when they move their loans to a private market lender.
Right now, Schmidt said she is not banking on a private or government refinancing solution for her loans. She will continue to pay them, but she’s frustrated that banks and the government make a profit off of her trying to go to school.
“I do get upset when people are making profits off of my struggle. It just makes me feel like I live in this society in which higher education is not valued,” she said.