This blog recently explored the draining effect that student loans are having on the economy. Saddled by huge debt, the younger generations are putting off major purchases that help drive growth, such as buying a car or a home.
To address this issue, Senator Elizabeth Warren introduced the "Bank on Students Emergency Loan Refinancing Act." According to the Washington Post, the bill would have let those with federal and private loans issued before 2010 refinance at 3.86 percent, the same rate Congress set for federal loans a year ago.
The bill's goal to replace federal earnings from student loan with an increased tax on citizens whose annual incomes exceed one million dollars was met with opposition in the Senate. Despite the setback, Senator Warren told the Post that she plans to reintroduce the bill at a later date.
The bill has sparked action by some financial institutions to address the burden of student loans on younger generations. RBS Citizens and Discover Financial are among others that are offering new programs to reduce interest rates on private student loans. Although lenders do make a small profit from assisting with loan consolidation, they are also beginning a more positive relationship with young professionals who will recall the experience when they decide to apply for a mortgage or other loan.
With seven million Americans already in default on their student loans, lenders must be aware of the risk involved with extending credit to young borrowers. Legislation may soon come that will relieve some of the burden on today's young professionals, but until that date, access to credit analytics can help lenders make more informed decisions. Credit application software helps protect both parties from unnecessary risk.