As student loan debt nears $1 trillion, Congress is considering new legislation to rescue not only the 37 million Americans burdened by their student debt but also the nation’s economy.
The Student Loan Forgiveness Act of 2012, introduced by Representative Hansen Clarke, aims to fuel the economy by forgiving borrower’s loans and allowing them to spend their money purchasing goods and services instead.
This legislation is similar to a bill proposed by Senator Dick Durbin, the Fairness for Struggling Students Act, which would allow borrowers to escape private student loans by declaring bankruptcy.
The two bills aim to head off what some financial advisors are predicting will be the next big financial meltdown if nothing is done.
The total student loan debt is difficult to measure with some estimates topping $1 trillion dollars, however a report in March by the Federal Reserve Bank of New York estimates the total student debt at $870 billion. This figure tops the nation’s credit card debt at $693 billion and auto loans at $730 billion.
The bill would forgive student loans up to $45,520, after 120 payments. Borrowers would be required to pay 10% of their income every month for 10 years in order to be included in the plan.
The bill goes on to cap interest rates for new borrowers at 3.4% and allows the refinancing of private loans. Those working in the public service sector would only be required to make 5 years of payments instead of 10.
Durbin’s bill, allowing borrowers to file bankruptcy, seeks to overturn a law passed in 2005 which prohibits discharging private student loans through bankruptcy.
These bills answer at least one of the demands made by the Occupy movements in their demands for equality. The issue of student debt has given rise to an offshoot movement known as the Occupy Student Debt campaign.
In November protesters from this campaign pledged to not repay their loans after one million other students made similar pledges.
The high cost of student loans is due to the rising cost of college tuition. The decade between the 1999/2000 school year and the 2009/2010 school year saw college tuition rise 37%, according to the National Center for Education Statistics.
This issue has also become important politically, with President Barack Obama continuing to talk about the idea of lowering student loan rates, while his Republican opponents have almost abandoned the issue entirely.
Wednesday, a Wisconsin candidate for governor, Kathleen Falk, unveiled her plan to create a new position to address student loan debt.
The Consumer Federal Protection Bureau (CFPB) announced the release, this month, of an online price comparison tool called Know Before You Owe to allow parents and students to compare more than 7,500 different colleges.
The CFPB’s efforts come on the heels of a report by the New York Fed. showing that almost 2 million Americans over age 60 have student loans either of their own or that they cosigned for.
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