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With feds setting the rates, student borrowers can't refinance

Interest rates are at the lowest that they have been in a long time. A lot of people who purchased a home before the housing crisis signed a fixed rate mortgage at rates as high as 8.0 to 9.0 percent in the 1990s. Now, a lot of those people who are able to are taking advantage of rates as low as around 3.5 percent for a 15 or 13-year mortgage by refinancing their home. Depending on the amount of the unpaid mortgage balance, this can save them multiple thousands of dollars in the long run.

Student loans help benefit the United States market by allowing individuals to obtain higher degrees that they may otherwise be unable to pay for on their own. However, recent grads are struggling more than ever with overwhelming student loan debt that their salaries aren't coming close to covering. So why can't they take advantage of these incredibly low interest rates?

The first important point to note in this discussion is that we are talking about federal student loans, not private loans. The Stafford loans and graduate loans whether subsidized or unsubsidized -- if you have them, you've heard the terms -- are backed by the federal government and these interest rates are not set in the free market. They are also not backed by collateral like a house or a car.

What is shocking is how many Americans owe student loan debt. According to many estimates, there is approximately $1 trillion in outstanding student loan debt in the country, and approximately $864 billion of that amount is federal loan debt that is being paid back at rates above 6 percent. Most of the 37 million Americans that owe student loan debt are over the age of 30. Approximately 15 percent are even above the age of 50. More bad news? Over 13 percent of the students who had to begin paying their loans in 2009 have defaulted already in the three years that followed.

Even worse, the interest rates that the government has set these loans at means that they are making three times the amount of money that it costs them to borrow it in the first place. Some wonder what is being done or what should be done to help those that are falling under this burden.

Source:TIME, "Why Can't People with Student Loans Refinance at Better Rates?" Dan Kadlec, Feb. 20, 2013

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