With student loan debt rising higher than credit card debt, Representative Clarke knew something had to be done.
This article originally appeared at the Huffington Post.
A new bill is circulating Congress that would alleviate the pressures facing students struggling to repay college loans.
The Student Loan Forgiveness Act of 2012, introduced to the House by Representative Hansen Clarke (D-Mich.), would reduce the debt of students who have already repaid a substantial portion of their loans over the past decade.
The act, which currently has over a million signatures on the petition website signon.org, aims to stimulate the economy by increasing the amount of available income students — otherwise theoretically debt-bound — would have to invest and spend.
“Students who studied hard, played by the rules, and are now desperate to find work are being denied basic opportunities and are, accordingly, falling behind on payments. They are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance,” wrote Representative Clarke in a blog post for the HuffPost. “We must set these students free.”
Not all current students are sanguine about the bill. “That may help students like me in the future,” high school senior George Edwards writes of the bill in the New York Times, “but I have to make a decision now about whether I am willing to take out loans to pay for my education.”
Under the bill, a 10-10 standard is used as the criteria for student loan forgiveness. If a student has made payments equal to 10 percent of his discretionary income for 10 years, remaining federal student loan debt is forgiven.
Students who have already paid 10 percent of their discretionary income for 10 years will immediately qualify for debt forgiveness, according to an FAQ.
Additionally, the forgiven debt would not be counted as taxable income and interest rates on federal loans would be capped at 3.4 percent.
In 2010, total outstanding student loan debt exceeded total outstanding credit card debt for the first time. By the end of this year, total outstanding student loan debt is predicted to exceed $1 trillion. As college tuition soars even in troubled economic times, students increasingly find themselves mired in debt upon graduation.
“There’s finally hope on the horizon!” the petition site reads. “Support a REAL economic stimulus and jobs plan.”
Lead photo credit: Flickr / a.mina
Majoring in Debt
Brittany Baker, Allegheny College/Sarah Lawrence College
“I’m all for paying high prices for good value—and my education was certainly of quality—but I’m not in the market to be abused. From interest rates to the ease of borrowing, to confusion of terms and steadily climbing price of college tuition, I guess I have to thank all of the higher education system while I have the floor to speak. To the loan companies, the banks and private colleges: thank you. I and my peers will forever be indebted to you. Read more…“
About Gregory Kristof
I like the concept, but I’m not sure if I agree completely with the details. If the economy picks up or if fewer students attend college as seems to be the trend, wouldn’t the degrees increase in value in the future? Why not waive interest for students who meet this criteria and cap repayment of principal at 2% of discretionary income. You may even include a pro bono clause especially when it comes to law students where a portion of student loan would be forgiven in return for service. Couldn’t we tap into a bunch of public defenders? Criminal defense for the poor is woefully underfunded. This would be something that is already paid for.
The way public defenders at paid for varies widely making some of what you describe impractical.
For example, in San Francisco, the entry-level salary for public defenders is 90k/yr, which then goes up to 6 figures your second year. This is probably enough to pay down your student loans without assistance (assuming you have ~180k in debt, which is about right for someone graduating law school this year).
However, on the other side of the bridge, in Alameda County, the entry level salary is only 67k/yr meaning that you’re going to need help with loan debt.
There is a similar (if unsurprising) disparity between entry level defenders in Orange County (77k), and neighboring Los Angeles County (56k).
It hardly seems fair for the San Francisco public defenders to benefit from a program if they don’t actually need help. Yet, if they do not benefit, then the San Francisco tax payers are basically shooting themselves in the foot, and would be better off cutting the public defender salaries (which would probably happen if it was suddenly easy and cheap to hire public defenders).
The problem is, student debt is no small part of the reason why the economy doesn’t improve. So your hypothetical situation is mostly just irrelevant. You may as well ask ‘well, what happens if Aliens invade tomorrow?’.
New business can’t be started by people with too much debt. The kind of people with too much debt (do to education) are the same people who start new business. Old, established business generally shed more jobs than they create, and even when they don’t, they don’t create anything like the number of jobs created by new firms. Construction won’t start again for real with all of this excess inventory, and the sort of people who usually buy new homes can’t afford to (because debt is too high, wages are too long, and too many boomers with greater resources refuse to acknowledge that their houses aren’t worth the sticker price. Because nobody will ever be able to afford the sticker price). That’s before you even get into the way debt suppresses demand.
You may as well argue that we can’t eat the rooster because maybe it’ll start laying eggs tomorrow. On the surface, it sounds like a sensible statement. Until you realize that roosters can’t lay eggs.
Thank you for the good writeup. It in truth was
once a enjoyment account it. Glance complicated to more brought agreeable from you!
However, how can we communicate?
I agree, students, especially in time of crisis, needs a break (not only students, but students are the future of your nation) and the ‘forgive’ is afterall not a bad idea. But im also for paying the debt. A alternative, I dont know if feasible or not, could that be to relax the payment rules and perhaps cutting to half the interest rates, but at the same time, adding few extra years? The state/organizations get their money, but they have just to wait a little longer, and the youngsters have more room, to pay and start a life?