Student Loan Forgiveness Bill Introduced in House
Last week Rep. Hansen Clarke (D-MI) introduced HR 4170, the Student Loan Forgiveness Act of 2012, in the House of Representatives. This bill would forgive the balance on student loans to eligible borrowers who make 10 years worth of payments. In addition to helping struggling borrowers, HR 4170 is intended, on a broader level, to increase economic recovery.
"This provides student loan borrowers with a second chance," Rep. Clarke said. "By cutting this debt, this frees up their money to invest on their own, and that will create new jobs throughout the country."
The bill contains two main provisions, first the requirement the Secretary institute a "10/10 Loan Repayment Plan" in which an eligible borrower may elect to have their aggregate monthly loan payment equal to 10 percent of their discretionary income, an idea similar to the current Income-Based Repayment (IBR) program. Second, and more broadly, the bill provides that an eligible borrower who has made 120 loan payments (10 years) will have the balance of their loan forgiven if they have made payments through any one or a combination of the following:
- Monthly payments under the 10/10 Loan Repayment Plan;
- Monthly payments under any authorized repayment plan (Standard, Extended, Graduated, Income-Contingent, Income-Sensitive, Income-Based), as long as the payment is not less than the amount that would have be calculated for the 10/10 Loan Repayment Program;
- Monthly payment of $0 during a period of deferment due to economic hardship.
The bill caps the loan forgiveness amount at $45,520 and also includes multiple eligibility caveats, including documentation requirements and special provisions for married borrowers.
Additionally, the bill would also cap interest rates on all new federal direct loans at 3.4 percent, improve and expand public service loan forgiveness to include primary care physicians in underserved areas, and refinance private education loans through Direct Loan Consolidation for certain borrowers. Bill language specifies that the offset for the cost of this program would come funds available for the Overseas Contingency Operations. While no official cost has been given, the bill would certainly contain a high price tag, making it very unlikely that it will see any movement in Congress.