The Montgomery County Council received a report from the Office of Legislative Oversight (OLO) at its June 27 meeting entitled “Student Loan Refinancing Authority” that shows it would be feasible to establish a student loan refinancing authority in Montgomery County.
The report states that student loan debt in the United States reached $1.28 trillion in 2017, with 44.2 million residents having an average monthly payment of $351. Refinancing a student loan can help borrowers by lowering interest rates or reducing the length of the loan period — lowering monthly payments and/or lowering the overall amount of repayment.
Neither the state of Maryland nor Montgomery County currently have a student loan refinancing authority. In 2016, the Maryland General passed legislation to allow Montgomery County to establish a Student Loan Refinancing Authority (SLRA).
Before the county can establish a SLRA, the legislation requires that the county conduct a study that, among other things, examines feasibility and demand and studies the operations of similar refinancing authorities in other systems.
A summary of the characteristics of the programs studied by OLO finds that, typically, the programs are offered to residents of the state or to out-of-state residents attending a school within the state. A few programs are open to all U.S. citizens or permanent residents.
On average, a borrower or co-signer must be employed and/or have a minimum income (typically $20,000 to $40,000). Borrowers generally had to have FICO credit scores between 670 and 720 — or meet other credit standards. Most programs do not require borrowers to have completed degrees.
The programs typically provide for loans from $70,000 to $150,000. The minimum loans range from $7,500 to $10,000. Some have no minimums.
The report found that state student loan refinancing programs typically receive initial funding from loan proceeds from a state loan authority’s private loan program — generally between 10 and 15 percent of the total loan amount for the refinance program is needed for collateral (assets pledged as a recourse to a lender if a borrower defaults on an initial loan).
Most of the state student loan refinancing programs started their first year as a pilot program, with an average of about $7.5 million in loan refinancing, and then increased funding in their second year.
The report offers two recommendations if the county is to consider implementing a student loan financing authority. They are:
Determine technical and policy characteristics; engage a consultant to conduct a market demand study.
If the council wants to establish a student loan refinancing authority, consider establishing it as a component of the Montgomery County Revenue Authority.
The complete OLO report can be found at http://tinyurl.com/y8cd3v5n .