The issues around the student debt crises continue to be a focus of this column. For this installment I thought to share some of the latest information being brought to us by a new website known as, StudentDebtCrises.org.
Student loan default continues to be a key concern for many. According to Andrew Martin reporting for the New York Times one in every six student loan borrowers is now in default. Default is defined as having fallen behind at least 12 months with payments. The federal government has in place a flexible payment program that in theory is supposed to prevent the borrower from default by way of low payments. These payments are so low that they are quoted as being affordable even for those who have lost their job. I couldn’t find any way to find out as to whether this program works. However, embedded in HR 4170, The Student Loan Forgiveness Act of 2012 there is a statement about discretionary income levels and how much a person has to repay is calculated according to income that is over 150% above the poverty limit.
Robert Applebaum introduced the Student Loan Forgiveness Act of 2012 to the US House of Representatives on March 8, 2012. Total outstanding student loan debt in America is tipping toward $1 Trillion this year. Since 1980 the average 4-year college tuition increased by 827%. Since 1999, student loan debt increased by 511%. We have a real problem here.
Student loan debt is the latest financial crises facing America and Americans. Many economists predict we will have another economic downturn of severe proportions if nothing is done. This is being referred to as the “student loan bubble.”
Here are some of the questions that were asked about the act:
Does HR 4170 cover private student loans? Yes.
How is discretionary income calculated? Discretionary income is defined as the borrower’s, and the borrower’s spouse’s (if applicable), adjusted gross income exceeding 150% of the poverty line applicable to the borrower’s family size as determined under section 673(2) of the Community Services Block Grant Act (422 U.S.C. 9902(2).
Would the forgiven debt be treated as taxable income? No.
What happens if the student borrower is unemployed or becomes unemployed? The borrower would still qualify for enrollment in the program if they become unemployed or are unemployed. For borrowers who would owe zero dollars based on their discretionary income, the Department of Education would make a case-by- case assessment of the appropriate minimum monthly payment. This minimum monthly payment, even if calculated at zero dollars, would be applied towards debt forgiveness.
Would there be caps on the maximum amount of forgiveness available? Yes and no. Under the bill, there would be no caps on the maximum amount of forgiveness available for borrowers who are currently in repayment or in school. For new borrowers, the bill imposes a debt forgiveness cap of $45,520 as incentive to students to make sound financial decisions and to encourage colleges and universities to lower the cost of their tuition.
How would HR 4170 impact interest rates on student loans? The bill would cap interest rates on federal loans at 3.4%
Would a borrower still be eligible to enroll if his or her loans are in default? Yes. Unlike the federal government’s program of Income Based Repayment (IBR), there is no requirement for the borrower to be current on his or her loans to qualify for enrollment in the new 10/10 program.
What if a borrower already paid the equivalent of 10% of discretionary income for at least 10 years? Under the terms of this bill, those who have already paid the equivalent of at least 10% of their discretionary income over the prior 10 years totaling 120 payments would immediately qualify for forgiveness upon passage of the bill.
How are married couples incomes calculated for purposes of this plan? For married couples that file their income taxes jointly, loan payments would be calculated according to household income. Loan payments for married couples filing separately would be based on the individual borrower’s income.
As a parent who took out a Parent Plus Loan, how would this bill help the parent? The parent would be eligible to enroll in the program.
Would this bill restore bankruptcy protections for student loan debt? No. However, Rep, Hansen Clarke will be introducing a “Student Loan Borrower Bill of Rights” in the coming weeks which, if signed into law, would restore bankruptcy and other consumer protections for student loan debt. The “Student Loan Borrower Bill of Rights” would also propose a host of much-needed reforms to the student lending system.
Let’s hang on and see what ends up taking place. There is no doubt about this being a very serious issue.
Be well and take care.
Nanette Burton Mongelluzzo, PhD
To read the full bill please go to this site: http://tinyurl.com/6txure8