Last year, I blogged about an exciting new bill introduced into Congress by Rep. Hanson Clark (D-MI), the Student Loan Forgiveness Act of 2012. That bill was not passed. We now have a new student loan bill that has been introduced into Congress by Rep. Karen Bass (D-CA): the Student Loan Fairness Act (“SLFA”). This an exciting bill that, if passed, would tremendously benefit student loan borrowers. Here are some of the highlights:
- A simple, straightforward income-sensitive repayment plan for all borrowers, coupled with loan forgiveness. As it stands now, there are roughly half-a-dozen different repayment plans for federal student loans, each with different monthly payment amounts and different repayment terms. Income-Based Repayment is the most popular income-sensitive option, providing for monthly payments of 15% of discretionary income for 25 years, with the remaining balance forgiven thereafter, but you must have a documented financial hardship. The SLFA provides for a single repayment plan for all federal borrowers called 10-10: any borrower, regardless of income and loan balance, would pay 10% of his or her discretionary income for 10 years, and the remaining balance would be forgiven thereafter, tax-free.
- Capped interest rates. Federal student loans can have interest rates in excess of 6% (Parent PLUS loans can have exceptionally high rates). Private loans have even higher rates. The SLFA would cap federal loan interest rates at 3.4%.
- Private loan relief. Private loans are incredibly problematic because the great benefits of federal loans, including income-sensitive repayment and loan forgiveness, are not available. The SLFA allows borrowers to consolidate their private loans with their federal loans, effectively making their private loans eligible for the 10-10 repayment plan, capped interest rates, and loan forgiveness benefits described above.
There are other exciting elements of the bill as well, including additional incentives for borrowers who enter public service, and greater relief for borrowers in economic distress. I encourage you to read the bill yourself. You can also click here to get an overview of the bill, and you can sign a petition in support of the bill. While the bill does not currently have a strong chance of passing in Washington’s gridlocked political environment, we need to spread the word and keep people talking about student loans. Eventually, if we keep at it, I am confident that we will see significant student loan reform.
