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Bill Proposes Federal Student Loan Rate Cap
WASHINGTON (3/25/13)--Rep. Karen Bass (D-Calif.) introduced a bill on Friday that would cap federal student loan interest rates at 3.4%, and also allow some borrowers to refinance their student loan debt to improve their rate.

Federally guaranteed loans make up 85% of total outstanding student loan debt, with private student loans comprising 15% of student loan debt. 

The bill, introduced Friday and known as the Student Loan Fairness Act, would also:

  • Require federal student loan holders to make 10 years of payments at 10% of their discretionary income, after which their student loan debt would be forgiven;
  • Allow borrowers whose student loan debt exceeds their income to convert their private loan debt into federal Direct Loans, and make those new federal loans subject to the 10/10 standard outlined above; and
  • Reward students who enter public service professions and work in underserved communities with a reduced loan forgiveness timeline.
Interest-free deferments would also be extended to student loan borrowers that have fallen on hard times under the terms of the bill. The legislation also aims to address tuition costs. For more on the bill, use the resource link.

Credit unions are starting to become more involved in private student lending, although the National Credit Union Administration noted in the month's edition of The NCUA Report that, for the most part, credit unions have been in this market for a relatively short time—most have offered private student loans for less than five years.

The agency said it expects credit unions to establish reasonable concentration limits for a private student loan portfolio to protect against risk.

Just one example of credit unions student loan growth is the case of Michigan credit unions in 2012. A strong lending performance propelled Michigan credit unions to record-setting results for 2012, according to the Michigan Credit Union League's analysis of data from the NCUA. One part of that loan growth was a 42% jump in student lending--with total student loans nearing $100 million.

For more of the NCUA report, use the resource link.
Other Resources

Student Loan Fairness Act
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