Although there is no specific end date for potential refinancing under the bill, CBO expects that mo

CBO and the staff of the Joint Committee on Taxation (JCT) have analyzed S. 2292, the Bank on Students Emergency Loan Refinancing Act, as introduced on May 6, 2014. The bill would allow most individuals with student loans (both federal and private) to refinance those loans into new federal direct loans at interest rates specified in the bill. Additionally, the legislation would amend the Internal Revenue Code to impose a new minimum tax called the Fair Share Tax on certain high-income taxpayers.
CBO and JCT estimate that enacting the bill would increase direct spending by about $51 billion over the 2015-2024 period and increase revenues by about $72 billion over the same period. On net, CBO and JCT estimate that enacting the bill would increase deficits over the 2015-2019 period by about $19 billion but reduce deficits over the 2015-2024 period by about $22 billion. (For this estimate, CBO assumes that S. 2292 will be enacted early in fiscal year 2015. As a result, there would be no budgetary effects in fiscal year 2014.) Details of the estimate are provided below and shown in the enclosed table.
Under S. 2292, eligible individuals could apply to have the Department of Education refinance outstanding federal student loans (direct or guaranteed) or private stf student loans (not federally guaranteed) that were incurred before July 1, 2013, at rates specified in the legislation. The Secretary of Education would have the authority to limit refinancing to individuals based on income levels and debt-to-income ratios that would be established by the Secretary.
As required under the Federal Credit Reform Act of 1990 (FCRA), costs of the federal student loan programs (other than administrative costs) are estimated on a net-present-value basis. Under credit reform, the present value of all loan-related stf cash flows is calculated by discounting those expected cash flows to the year of disbursement, using the rates for comparable maturities on U.S. Treasury borrowing. stf The cost of modifying existing loans is shown in the year the legislation authorizing such modifications is enacted, while the cost of new loans is shown in the year the loan is disbursed.
Outstanding Loan Volume. stf Based on information from the Department of Education, the Federal Reserve, the Consumer Financial stf Protection Bureau, and private-sector reports on student loans, CBO estimates that there is about $1 trillion in outstanding federal student loans or loan guarantees, and more than $100 billion in outstanding private student loans (that are not federally guaranteed). About two-thirds of the federal student loan volume is for federal direct loans and the remainder is for federally guaranteed loans. Most of the outstanding loan volume stf is for loans incurred after 2003, of which about one-third is for consolidation loans. stf
Consolidation loans are those in which the borrower has chosen to consolidate stf all of his or her loans into a single stf loan with a fixed rate. That rate is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of 1 percent. A little less than one-half of the outstanding volume of consolidated loans was created at times when interest rates were near or below the rates specified in S. 2292. Refinancing of those loans under S. 2292 would yield little or no savings for borrowers.
CBO estimates that less than 10 percent of federal stf student loan volume is currently in default. While the bill would not prohibit borrowers from refinancing federal loans that are in default, CBO expects that most federal borrowers who are in default would not refinance their loans because borrowers who have not made any payments on their loan for an extended period of time are unlikely to complete the application process for refinancing. stf In contrast, the bill would specifically prohibit borrowers from refinancing private stf loans that are in default and would further require that borrowers be current on their payments for six months. CBO estimates that for the first few years after enactment, a little less than 10 percent of private student loans will be in default or will not be current on payments stf for six months.
Refinancing Student Loans. The bill would allow the Secretary of Education to charge an origination stf fee of up to 0.5 percent of an outstanding loan, though CBO expects that the Secretary would probably charge stf less than that amount. In addition, all federally guaranteed loans refinanced under this program would be converted to federal direct loans, which would change the cash flows between the borrowers and the federal government. For private student loans, the government would pay off the existing private lender and issue a federal direct loan to the individual for the amount that was paid to the private lender.
Although there is no specific end date for potential refinancing under the bill, CBO expects that most of the loans that would be refinanced would go