Jacquelyn Martin, File, Associated Press
FILE - In this Oct. 6, 2011, file photo, Gan Golan, of Los Angeles, dressed as the "Master of Degree," holds a ball and chain representing his college loan debt, during a protest in Washington.

Refinance your home? Sure! Refinance your car loan? Probably. Refinance your student loan debt? No way.

With interest rates at historic lows, replacing existing loan debt with a new loan at better terms is a smart individual move that can also help the U.S. economy by freeing up income for consumer purchases.

A report from the Center for American Progress identifies a group being left behind in the scramble to refinance, though: students struggling to repay college loan debt.

Collectively, that's a bill that amounts to $1 trillion, with $864 billion of that money backed up by the federal government. An increasing percentage of borrowers are failing to keep up in repaying those loans, the report said. More than 13 percent of the students whose loans came due in 2009 defaulted within three years.

While interest rates on other government debts hover around 2 percent, interest rates on unsubsidized federal student loans stands at 6.8 percent. The report calls for Congress to enact a program for refinancing existing student loan debt and for consolidating private student loans into the federal program.

A new report from the New America Foundation makes more than 30 recommendations for simplifying and improving the federal student loan program. Those include:

  • Requiring all federal student loan borrowers to repay their loans based on a percentage of their earnings after they graduate
  • Creating a new formula for student loan interest rates that adjusts annually according to market conditions
  • Giving colleges discretion to lower federal student loan limits at their schools or in certain programs to discourage excessive borrowing
  • Limiting eligibility for federal students loans to 150 percent of program length to discourage prolonged enrollments
  • Restoring the ability of borrowers to discharge private student loans in bankruptcy to make private loan borrowing a safer option for students.

In the meantime, a storyat the MSN Money website offers tips for students beleaguered by loan debt. One of those is to re-consolidate multiple student loans, (which can be done only once for federal loans). "The benefits are that you can consolidate multiple loans into a single loan, and loans with variable rates may be consolidated into a fixed rate with a repayment period of up to 30 years," the story said. Be aware, though, that re-consolidating can increase costs over the long run even though it lowers payments in the short term.

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