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The Student Loan Forgiveness Act: How it Could Help Solve the Student Debt Problem

Jun 6, 2012 Jennifer Williamson, Distance Columnist | 1 Comments

In March of 2012, Congressman Hansen Clarke of Michigan re-introduced the Student Loan Forgiveness Act. Despite its name, the act would not unilaterally forgive all student debt. It is, however, designed to make paying back student debt easier and less onerous. Here are a few things the Act would do for students, if signed into law.

A 10/10 cap on loan repayments

Named the 10/10 student loan repayment plan, the bill would limit payment amounts to only 10% of the borrower’s discretionary income. This is the same limit amount as stipulated under President Obama’s Pay As You Earn proposal. In addition to the 10% limit, your loan would be forgiven after ten years or after you’ve made 120 payments—either payments made under the 10/10 plan or payments that were not less than they would have been under that plan. If you qualify for deferment because of economic hardship, the months you pay nothing under your deferment agreement count as “payments” of $0 under this plan.  

A limit to forgiveness

Student Debt

Repaying your student debt isn’t easy. Hopefully, however, the Student Loan Forgiveness Act would make it easier to repay student debt—and make the debt burden a little lighter.

Not all of the loans you took to earn your degree online would be forgiven. The limit is up to $45,520 in principal and fees, plus the interest. While it’s not 100% of loans for some students, it’s still a generous amount. The forgiveness limit only applies to those with loans that were taken out on or after the law is signed; for those with loans that originate before then, there is no limit to forgiveness. In addition, prior payments may be applied—so if you’ve been paying a student loan off for ten years before the law is enacted, you could theoretically be eligible for forgiveness that day.

Automatic repayments

The plan requires borrowers to allow automatic deductions of tuition payments from their bank accounts. This may be a good thing or a bad thing—it’s good for those prone to forgetting their payments, but it could be bad for lower-income borrowers who live paycheck to paycheck and may not be able to afford to have automatic payments taken out every month.

Limits to federal loan interest rates

Under the plan, interest rates for public education loans would be limited to 3.4%--eliminating the planned rise in interest rates for some types of federal loans to 6.8% as of July 2012.

Making it easier for public service professionals

Under the new plan, the act would forgive loans for those working in public service after 60 payments, not 120—making repayment significantly easier for those who chose jobs that contribute to society but don’t pay high salaries.

New terms on private loans

Those who qualify could eliminate their private student loans by converting them to federal loans. Private loans often have high variable interest rates and come with worse terms and options than federal loans do—and this would be a great help to those with large amounts of private student debt.

Repaying your student debt isn’t easy. Hopefully, however, the Student Loan Forgiveness Act would make it easier to repay student debt—and make the debt burden a little lighter. If it’s signed into law as-is, students and college graduates could see their tuition reduced or forgiven entirely, and repay only what they can afford each month—without serious financial penalties down the road.


jamie hernandez Over a year ago

my biggest deal is with my private student loans. My interest rate on my private loans are at nine percent. I feel like I'm never going to pay them off with interest rates that high. All I want is to have a low interest rate like at 3 percent. I know if it was that low and fixed I could finally see a dent in my student loans.

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