U.S. News and World Report recently reported the total outstanding student loan debt, private and public, is about to exceed $1 trillion. The Washington Post recently reported that “student loans are the next ‘debt bomb’ that will result in another economic crisis.” With the student loan debt and college costs rising, many students may end up paying that debt for the rest of their lives.
Since most loans are made by the federal government, the interest rates are fixed at a lower rate than private loans, but there is a catch: declaring bankruptcy will not absolve you of your federal debt obligations. Rules made in the 1990s make this all but impossible, and the debt can only be cleared if a court finds that repaying it would cause “undue hardship” to the borrower.
But if you still worry about payments, there is good news. Last month, H.R. 4170, the Student Loan Forgiveness Act of 2012, was introduced to Congress. The bill calls for a 10/10 plan, where payments would be capped at no more than 10 percent of income, and work to pay off the debt within 10 years.
If passed, it would also put a cap on forgiveness at $45,520, with no caps on loans taken out prior to enactment but prior payments will be accepted into the plan.
Federal loans would be capped at 3.4 percent, lower than the present 6.8 percent.
Finally, for those who have private loans there would be a mechanism to transfer private debt into federal debt.
Also, for those who take the public service forgiveness option, loans would be forgiven after 60 payments instead of the present 120. While the military is a well-known public service option, there are currently safer options. Students can volunteer in various federal programs, such as AmeriCorps and the Peace Corps, or who devote 10 years of their life to other types of public service (such as being a public school teacher) can expect to see a large portion forgiven already. The new rule will make these positions far more desirable and pay off more of their debt.
This act should have more support and more publicity. It’s currently the only decent solution to the looming student debt crisis, and with so many students deep in debt hampering the economy, we need this to be passed as soon as possible.