Bill Clinton mostly on the mark about refinancing college loans

Former President Bill Clinton raised a hot-button issue while stumping for his wife in Los Angeles this week: America’s mounting student loan debt.

Student debt in the United States has reached $1.3 trillion, which trails only the amount Americans owe on their mortgages. It’s often blamed for preventing young people from buying houses and cars, which fuels the country’s economy.

Undergraduates in the class of 2015 finished school with an average of $35,000 in student loan debt, the most in history, according to Edvisors.com, a financial aid website.

If elected president in November, Democratic front-runner Hillary Clinton would remove a unique barrier related to college loans, the former president claimed.

“A college loan is the only loan in the United States that you cannot refinance when interest rates go down,” Bill Clinton said, speaking at a recent campaign rally at Los Angeles Trade-Technical College.

We wondered: Is refinancing really off-limits for all college loans? We decided to check the facts.

Past efforts at change

Both Hillary Clinton and Vermont U.S. Sen. Bernie Sanders, her rival for the Democratic presidential nomination, have pledged to allow student loans to be refinanced.

But they weren’t the first to call for this change.

In June 2014, Senate Republicans rejected legislation by U.S. Sen. Elizabeth Warren, D-Mass., that would have let student borrowers refinance their federal loan debt.

“Homeowners are refinancing. Small businesses are refinancing. We just want young people who got an education to have their shot,” Warren was quoted as saying in a Washington Post article at the time.

Republicans said they were not convinced the legislation would have resulted in lower borrowing costs, and they labeled it an election stunt.

The bill would have let people with federal and private loans issued prior to 2010 refinance at 3.86 percent, the article said.

It added that the Obama administration estimated that the bill could have helped 25 million borrowers save $2,000 each over the lifetime of their loans, or $50 billion.

Our research

As they’ve campaigned across the country, Hillary Clinton and Sanders have each pledged to allow for refinancing of college loan debt.

What they, and apparently Bill Clinton, are talking about is refinancing federally backed student loans, which account for about 90 percent of all student borrowing.

We turned to the nonprofit college planning group American Student Assistance for some advice. They and other groups say federal student loans can be refinanced into private loans. But doing so can remove federal protections such as fixed interest rates and the ability to pause repayments.

Also, private student loans can be refinanced into new lower-interest private loans.

But there’s no provision in federal law allowing the refinancing of a federal loan to another, lower-interest federal loan.

“There is no federal refinancing. Congress sets the interest rate for federal student loans, and most of these rates are fixed by law, no matter how solid your credit or income becomes post-graduation,” American Student Assistance advises potential borrowers.

PolitiFact Texas examined a similar claim in 2014 and rated it Mostly True.

It spoke with Heather Jarvis, a North Carolina attorney specializing in student loan law, who said some graduates may be able to refinance student loans at lower rates through private lenders. But, she said, this would only happen in cases in which borrowers have substantial income.

Our ruling

Former President Bill Clinton said at a recent campaign rally in Los Angeles: “A college loan is the only loan in the United States that you cannot refinance when interest rates go down.”

Borrowers of federally backed student loans, which account for about 90 percent of student loans, cannot refinance those into lower-interest federal loans. Congress sets the interest rate on these loans, and there’s no provision in federal law that allows for them to be refinanced. Depending on factors such as income, some borrowers can refinance their federal loans into lower-interest private loans, though they risk losing their federal loan protections.

Clinton most likely was referring only to federally backed loans when he made his statement, but a clarification about private loans would have helped.

We rated his claim Mostly True.

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This article was edited for length. To see a complete version and its sources, go to www.politifact.com/california/statements/2016/apr/06/bill-clinton/bill-clintons-college-debt-claim-mostly-true/.

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