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Bill to Pay Back Student Loans Proposed by Congressman Tom Petri

Legislation has been proposed to help people pay back student loans, but the bill’s sponsors disagree with doomsayers who say a disastrous economic bubble is brewing over defaults and late payments.

Representative Tom Petri (R-WI), co-sponsor of the Earnings Contingent Education Loans (ExCEL) Act that would simplify student loan repayment by tying it to the borrower’s salary level, disputes alarmists concerns about the effect that the $1.1 trillion in student debt is having on the economy.

“The rising cost of a college education is troubling and has led to over-borrowing,” Petri told “However, terming the student loan debt problem as a ‘bubble’ in the same way the housing ‘bubble’ resulted in an economic collapse, I think is misleading.”

Student loan debt was at $364 billion in 2005, but has nearly tripled since then, climbing over the $1 trillion mark in 2012. More than 60 percent of today’s college students took out loans to get through school and the average graduate owes $26,600.

Petri teamed with Rep. Jared Polis (D-CO) to draw up legislation that would make it easier and more affordable to pay that money back.

Deduct Student Loan Payment From Paycheck

Their bill asks employers to withhold a percentage of the employee’s salary (estimated between five and 10 percent for starting jobs) to pay off student loans. It’s similar to the procedure for withholding tax. The amount the borrower repaid would increase as salary rose, and decrease if earnings dropped or they became unemployed.

“When students graduate from college, traditionally they will make less,” Petri said. “As they progress in their careers, they’ll earn more. The repayment schedule should follow this trend.”

Petri said he and his staff have met with several business owners to make sure the bill doesn’t overwhelm them. Most businesses already withhold money from employee paychecks for payroll taxes, insurance costs, and 401(k) investments.

“It’s important that the provisions in the bill don’t create a heavy burden for employers,” Petri said. “We want to ensure that the additional withholding is as consistent with current practices as much as possible.”

Deadline for Student Loan Bill Approaching

It’s unlikely the House will act quickly on the bill, but there is a firestorm brewing over the rise in interest rates for students with subsidized Stafford loans. Unless Congress intervenes, the current rate of 3.4 percent will double on July 1 to 6.8 percent.

The ExCEL Act would tie interest rates to the 10-year Treasury rate, plus 3 percent. That rate would be fixed for the life of the loan. As of May 3, the Treasury rate is 1.66 percent – making the fixed interest rate 4.66 percent.

Monthly payments under the ExCEL Act would be calculated using the borrower’s starting salary and the current poverty line income. For example, someone with a starting salary of $30,000 would make monthly payments of $159.

The bill has been introduced, but could take a while to get through the Education and Workforce Committee. Petri and Polis are waiting on a report from the Congressional Budget Office on the savings this legislation would bring over the current programs administering student loans. It is expected to provide substantial savings.

The ExCEL Act would retain loan forgiveness polices for certain programs such as teaching in high-need public schools, military service, serving as a public defender,  but eliminate many of the jobs listed in the 2007 Public Student Loan Forgiveness Act.

“I’m optimistic that this proposal can be part of any effort to institute a long-term fix to the interest-rate problems or part of efforts to reauthorize the Higher Education Act,” Petri said.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

Wisconsin Congressman Tom Petri speaks at a hearing

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    1. Parker, S. (2012, December 18). Will These 5 Solutions Really Solve the College Debt Crisis? Retrieved from