Policy Considerations for a Student-Loan Refinancing Authority
Author: State Council of Higher Education for Virginia
Date: 2016-11-01
Type: Reports - Evaluative
Subjects: Educational Policy,State Policy,Student Financial Aid,Debt (Financial),Higher Education,Program Budgeting,Money Management,College Students,Paying for College,State Government,Government Role,Governance,Ombudsmen,State Legislation,Student Loan Programs,Costs,Fees,Credit (Finance),Models,Best Practices,Policy Formation,Loan Repayment,Employment Opportunities,Educational Vouchers,Student Needs,State Aid,Educational Change,Tax Credits,Incentives

Access and affordability are the main themes of Goal 1 of The Virginia Plan for Higher Education. Progress toward these goals can be measured by a variety of means, but access and affordability serve as foundational guiding principles as the Commonwealth of Virginia crafts its annual and biennial higher-education budgets. Student-loan debt is but one measure in determining if Virginia's system of higher education is maintaining affordability. This can be evaluated two ways: by the amount of debt accumulated, and by evaluating if debt levels are manageable by borrowers. This paper focuses on the latter. As student-loan debt continues to escalate, a number of observers have expressed concerns about the ability of borrowers to manage their debt as well as about the potential negative impact of high debt on the economy. Specifically, there is evidence of borrowers whose debt level has increased years after graduation due to finance charges, collections fees, and increased interest rates. During the 2016 session of the General Assembly, Senator Janet Howell and Delegate Marcus Simon asked that the Commonwealth consider the state's role in addressing student debt. In response to legislative requests, State Council of Higher Education for Virginia (SCHEV), Department of Treasury and the Virginia529 Savings Plan reviewed various means by which a state could be involved in student-loan refinancing. The review found a growing number of states with planned or existing student-loan refinance programs but no state with an agency whose sole responsibility is to refinance student loans. The review further found that these state refinancing programs focus on borrowers maintaining good credit scores and that refinancing the loans of higher-risk borrowers increases financial exposure to the state. Other loan-refinancing models were reviewed and are presented within this paper. To determine which of these models best balances the role of state government and the needs of borrowers in addressing student-loan debt, the Commonwealth should decide: (1) what blend of low- and high-risk applicants the program should target; (2) an acceptable level of financial exposure in the form of state debt and student-loan guarantees; (3) the amount of equity contribution available from general funds; (4) staffing levels; and (5) the governance structure of any proposed refinancing authority. The committee also has identified a number of proactive strategies for addressing student-loan debt. Many of these strategies serve to minimize debt before a student becomes burdened with amounts that are unmanageable by post-college earnings. In addition to considering if there is a state role in loan refinance, the Commonwealth may wish to also explore, or in some cases continue to explore, one or more of these strategies. Contains a list of resources.