For Immediate Release: Tuesday, June 27, 2017
Montgomery Council releases
Office of Legislative Oversight report on
Student Loan Refinancing Authority
Report shows that it would be feasible for County
to establish a loan refinancing authority
ROCKVILLE, MD, June 27, 2017—The Montgomery County Council today received a report from the Office of Legislative Oversight (OLO) 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. The Council asked the Office of Legislative Oversight to undertake the study by executing a feasibility and demand study, assessing potential benefits to recruitment and retention, and studying the operation of similar programs in other systems, including operating and startup costs.
Councilmember Tom Hucker was the chief sponsor of the request for the report from OLO.
“This report paves the way for establishing a county Student Loan Refinancing Authority,” Councilmember Hucker said. “Borrowers can't expect relief from the Federal government. With this report proving that this is the responsible path forward, I plan to introduce legislation to implement this program in Montgomery County.
“Too many students are leaving college with massive amounts of debt. It cripples their ability to buy a home, start a business or save money for retirement. Under this program, Montgomery County can help them refinance their loans at lower interest rates, saving them thousands of dollars.”
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). For example, a $10 million student loan refinancing program would need $1 - $1.5 million in collateral. A program that is new to the student loan market and is not funded by proceeds from an existing loan program would require collateral of 20 percent or more, or at least $2 million in this example.
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 .