Student Loan Forgiveness Act Would Cancel Some Debt after 10 Years

In an effort to help jump-start the economy, generate jobs and lend a helping hand to college graduates facing tough financial times, Democratic Rep. Hansen Clarke of Michigan drafted an act in March that he believes will create much-needed financial relief for millions of Americans.

If passed, H.R. 4170, the Student Loan Forgiveness Act of 2012, could help those graduates unable to move forward financially because of overwhelming student loan debt. The typical student loan debt in 2010 was more than $25,000, and with the anticipated increase in college costs and cost-of-living expenses and lack of high-paying jobs, economists don’t see any relief on the horizon.

Current outstanding student loan debt is estimated to be mounting at a rate of more than $2,800 per second, with forecasts to exceed $1 trillion this year. More than $100 billion was borrowed in 2010 alone to pay for higher education, the largest amount so far. For many graduates, repayment of these loans has been rough as they entered a sluggish job market upon graduation.

Economic Recovery is Goal

The key objectives set forth by the Student Loan Forgiveness Act of 2012, according to the proposed bill, are to: “increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes.”

The Student Loan Forgiveness Act of 2012 would amend Title IV of the Higher Education Act of 1965 to establish a plan that allows borrowers with federal loans to base their monthly payments on their (and that of their spouse, if applicable) adjusted gross income.

If passed, the bill would generate a “10/10 Loan Repayment Plan” for loan forgiveness. In other words, if a graduate can make payments of at least 10 percent of his/her annual discretionary income (the difference between gross income and 150 percent of the federal poverty line for family size) for 10 years, the remaining federal student loan debt would be erased. Those people already making payments would receive a reduced payment period, and those who may have already paid for 10 years would already meet the time requirement toward forgiveness. Participation in the program would require the borrower to agree to have 12 monthly payments electronically debited from a bank account per year.

The proposed bill also sets forth a cap on federal student loan interest rates at 3.4 percent. People in need of aid would have the opportunity to convert any private loan debt with higher interest rates into federal Direct Loans and then enroll in the 10/10 program.

If passed, borrowers who joined a public service profession such as becoming a teacher or firefighter would receive a reduced payment requirement of five years instead of 10. The bill would also offer these incentives to medical professionals who practice in underserved communities.

Investing in America

In drafting this bill, Clarke anticipates that by forgiving debt and reducing interest rates and fees, millions of people will have the means to buy houses and start businesses; they could invest in America. This, in turn, could possibly enhance consumer demand for goods and services and boost the economy.

The proposed bill also includes loan forgiveness for future borrowers. Under the plan, they would be subject to a cap of $45,520 on forgiveness. This number was based on the calculated cost of a four-year degree at a public university, which Clarke hopes will keep students aware of the cost of education and possibly for schools to control tuition jumps.

The projected savings from Iraq and Afghanistan Overseas Contingency Operations would be used to fund this bill. The proposed bill would not affect money delegated for current student aid programs.

The bill already caught the attention of 1 million people in June who committed to a SignOn.org petition in support of the Student Loan Forgiveness Act of 2012.

In debt? We can help!

  • Amount
  • Type
  • Contact

How much do you owe?

What can we help you with today?

Related Articles

ITT Tech building

CFPB Sues ITT for Allegedly Exploiting Students with Predatory Loans

The Consumer Financial Protection Bureau sent a jolt through the for-profit college industry this week when the federal agency sued ITT Educational Services Inc. for predatory lending practices, saying it would seek restitution for victims, a civil fine and ...

Continue Reading
College classroom with professor and students

State Lawmakers Are Seeking Solutions to Rising Student Loan Debt

There is help available for some of the 40 million Americans dealing with $1 trillion in student loan debt, but the aid comes with a catch. You have to move to Maine, or maybe Michigan or Wisconsin. Those are the only states actively pursuing solutions ...

Continue Reading
Senator Elizabeth Warren speaking

Politicians Scramble to Fix Broken Student Loan System as Write-Offs Soar

Americans are taking out more loans than ever to pay for college and defaulting on them in record numbers. Politicians, most notably U.S. senators Dick Durbin, D-Ill., Jack Reed, D-R.I. and Elizabeth Warren, D-Mass., have introduced legislation to address ...

Continue Reading
CFPB logo in green

CFPB Will Oversee Largest Student Loan Servicers

The millions of Americans facing problems with the companies servicing their student loans now have an angel looking over their backs. The Consumer Financial Protection Bureau (CFPB), a government watchdog agency, will start exercising its considerable ...

Continue Reading
Education Secretary Arne Duncan talking to the media

Department of Education Nets $41.3B Profit in 2013 from Student Loans

A new government report shows the U.S. Department of Education generated $41.3 billion from federal student loans in the 2013 fiscal year, making it the third most profitable industry in the global economy behind Exxon and Apple. The Congressional Budget ...

Continue Reading
Sign of Portland State University

Oregon’s ‘Pay It Forward’ Seeks Alternate College Funding

Congress haggled over lowering the rates on federal student loans for months until reaching a final decision that President Barack Obama signed into law in early August. While the compromise gives 11 million students lower interest rates on their loans ...

Continue Reading
Teacher in a classroom with students

CFPB Toolkit Increases Awareness of Student Loan Forgiveness for Public Sector Jobs

Workers in the public sector, including teachers, law enforcement officers and soldiers, often sacrifice higher salaries or place their lives in danger in order to improve the well-being of others in their neighborhoods, cities and across the country. In ...

Continue Reading
student loan application

Borrowers Face Confusion over New Student Loan Servicers

The Department of Education is nearing completion of its transfer of millions of federal student loans to a new set of loan servicers, but the process did not come without a few glitches. Officials announced last week that the transfer of all student loans ...

Continue Reading
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!

x