Despite our general feeling of “bleh” when it comes to our present Congress’s ability to get things done, there’s actually a lot going on in Washington these days that directly impact student loan borrowers. I wanted to give people a general overview of what’s going on. I’ve blogged about each of these issues separately to some extent, but thought it would be useful to give some updates and tie everything together.
- Student Loan Interest Rates Slated to Increase. On July 1, 2012, interest rates on undergraduate subsidized federal student loans are slated to increase from 3.4% to 6.8%. That doesn’t sound like much, but it would cause average college students to accumulate thousands of dollars in extra interest fees over time. Remarkably, there is general agreement by lawmakers in both parties that we shouldn’t let this happen. The issue is how to pay for it, and there is a huge debate about this. Republicans want to pay for it by cutting spending for certain health care programs, while Democrats want to pay for it by generating more revenue from the wealthiest Americans. To read more about this debate, click here.
- Restoring Bankruptcy Protections to Private Student Loans. Currently, most student loans cannot be discharged in bankruptcy. This makes student loan debt unique compared to most other types of debt, and means that borrowers are generally stuck with their student loans until/unless they can pay them off. This wasn’t always the case, however, and it actually is a recent phenomenon that resulted from a 2005 act of Congress. A Senator has introduced a bill to restore bankruptcy protections to private student loans, which tend to have higher interest rates and much more inflexible repayment terms compared to federal student loans.
- Student Loan Forgiveness Act of 2012. A Congressman has introduced an exciting student loan reform bill that would improve the existing Income-Based Repayment plan by significantly reducing borrowers’ monthly payments and shortening the repayment term, triggering loan forgiveness much earlier. The Act would also allow private loans to be consolidated with a federal loan, effectively making private student loans eligible for these programs (which are currently limited only to federal loans). A petition supporting the bill has amassed almost 1 million signatures. Have you signed it yet?
I take all of this as very good news. In my opinion, the interest rate reduction is the most likely of the three bills to actually get passed in the near future. Regardless of their actual chances of passage, however, the fact that these bills have not only been introduced in Congress, but also are being debated and widely discussed in the media, means that our national leaders are starting to take note that we really do have a student loan problem in this country. I think this is a big deal, and is great evidence that we just have to keep talking about student loans and making our leaders more aware of the scope of the problem. Only then will we get real reform.