U.S. Rep. Hansen Clarke, D-Detroit, proposed a national bill, named the Student Loan Forgiveness Act of 2012 (H.R. 4170). The bill, if passed, would forgive outstanding student loan debt for all Americans who have made payments equal to 10 percent of their discretionary income for 10 years, according to Rep. Clarke’s website.
“This bill provides that if a student loan borrower makes payments equal to 10 percent of their discretionary income, for a period of ten years, the balance of their federal student loan debt will be forgiven,” said Rep. Clarke when proposing the bill to Congress on March 8. “This provides student loan borrowers with a second chance, those who have been struggling financially, and by cutting this debt, this frees up their money to invest on their own, that will create new jobs throughout this country.”
On Tuesday, April 11, Congressman Clarke held a Google+ Hangout Session to discuss the act. Student representatives from Western Michigan University, Oakland University, and numerous other Michigan colleges participated in the hangout session to talk about the bill and the realities that many student borrowers are currently facing.
Local political activist John Curran found out about the online conference through the congressman’s Twitter account and started following the news about the bill. He said that each university involved in the hangout had the opportunity to ask questions regarding the potential legislation.
“One of the key features is that it will tie your monthly payments to income,” Curran said. “For a lot of folks who are graduating with the tough job market right now and for a lot of people that are either finding themselves living at home, unemployed or not able to find a job that represents the value of their education, this caps payments at 10 percent of your income.”
This bill would amend the Higher Education Act of 1965 by giving borrowers the option to enter the, “10/10” loan repayment plan. The borrower’s discretionary income will be defined as any annual income exceeding 150 percent of the poverty line for an individual or family. This bill would also allow graduates who enter public service professors (such as teachers and first responders) to have their loans forgiven in five years instead of 10 as well as cap interest rates on federal loans at 3.4 percent.
“There is a potential for a student loan bubble, much like the housing bubble, but on a much smaller scale. If that bubble were to burst, the loans are overvalued and not representative of that value and the benefits of going to college,” said Curran. “A large number of people would default on those loans. It could have a serious negative effect on the economy as a whole.”
The amount of student loan has skyrocketed in recent years to a total of $867 billion last year. During the 2010-2011 academic year, students and families borrowed $104 billion in loans from the Department of Education, a 50 percent increase over three years.
“The driving goal of the bill is to make it easier to pay back loans,” said Curran.
Over the past several years, students and parents have continued to take out more loans to cover the steadily-increasing cost of education. Considering the job market, people who acquire all this debt then go out into the work force, they either have trouble finding work or finding jobs that don’t pay enough to cover the cost of their loans, and that’s what causes more trouble in the economy.
“It’s time for Congress to stand for the rights of student loan borrowers,” said Clarke. “It’s time to forgive student loan debts.”