Student loan debt has been a hot button issue in recent months as borrowers have seen loan balances and delinquencies increase considerably for this type of credit. As a means of mitigating these problems, one federal lawmaker has introduced a bill that could provide significant help to borrowers.
The Student Loan Forgiveness Act of 2012 was introduced in the U.S. House of Representatives last month, and the bill has quickly gained a significant amount of public support since. An online petition in favor of the bill has nearly half a million signatures and many current students are rallying to the cause.
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The bill, introduced by U.S. Rep. Hansen Clarke (D-Mich.), would forgive student loan debt for borrowers who have paid 10% of their discretionary income for 10 years. It would cap interest on federally issued student loans at 3.4%. Further, consumers who go into teaching, public service and private medicine in areas considered “underserved” would have their debt forgiven in half the time. Five other lawmakers have signed on as co-sponsors.
“This provides student loan borrowers with a second chance, those who have been struggling financially,” Clarke said on the floor of the House in introducing the bill. “And by cutting this debt, this frees up their money to invest on their own. That will create new jobs throughout this country. It’s time for Congress to stand up for the rights of student loan borrowers. It’s time to forgive these student loan debts.”
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In the past year or so, student loan debt hit the significant and worrying milestone of $1 trillion in outstanding balances, more than what Americans owe on their combined credit card accounts. Currently, the average former college student owes about $25,500 on their loans, and if current rules for federal education loans are allowed to expire in the coming months, interest rates on them would double to 6.8%. However, if the bill were to pass, up to $45,520 – the average cost of a four-year degree at a public university – could be forgiven.
Millions of college students in recent years have graduated with not only tens of thousands or more in student loan debt, but also significant amounts of credit card debt stretched across a number of accounts, exacerbating their financial constraints.
Image: Terren in Virginia, via Flickr