Will These 5 Solutions Really Solve the College Debt Crisis?
When the 113th Congress convenes in January, the student loan crisis could be front and center.
Wisconsin Republican Representative Tom Petri introduced the Earnings Contingent Education Loans (ExCEL) Act of 2012 on December 17th. That bill would simplify and improve student loans for borrowers while saving significant taxpayer dollars.
“If you are earning a higher income after leaving school, you would repay your loan more quickly, although with no more than 15 percent of your income beyond an allowance for basic living expenses,” Petri said in a statement. “If you lose your job, get sick, or can't find a good job, your loan payments would automatically be kept at affordable levels.”
Petri said that students would not face interest spiraling to unmanageable levels if they are unemployed temporarily. It protects borrows from financial ruin and taxpayers who have to cover default loans.
Employers would be charged with withholding payments from wages in the same way they do federal and state taxes. Payments would be capped at 15 percent of borrowers’ income after basic living expenses, and borrowers would pay a percentage of their income until the loan is repaid.
It’s a system that has worked successfully in the United Kingdom, Australia and New Zealand, where defaults seldom occur.
Since 2003, total student loan debt has increased every quarter. The Obama Administration has marked the trillion-dollar student loan crisis as one of the most serious financial issues facing this country. In July, he signed a bill that kept interest rates on federal student loans from doubling in 2012. Without that bill, nearly 7.5 million students would have had to pay $1,000 more on their loan payments.
Currently, there are several bills that deal with student loans in Congress.
New York Rep. Steve Israel, a Democrat, introduced a bill earlier this year to amend the Internal Revenue Code of 1986 to exclude from gross income amounts paid by an employer on an employee's student loan. So far, little action has occurred on it.
Rep. Hanson Clarke, a Democrat from Michigan, also introduced the Student Loan Forgiveness Act of 2012. In a fact sheet about the act, it notes:
- If you make payments equal to 10% of your discretionary income for 10 years, your remaining federal student loan debt would be forgiven.
- If you have already been making payments on your student loans, your repayment period would likely be shorter than 10 years. The amount you have already paid on your student loans over the past decade would be credited toward meeting the requirement for forgiveness.
The last major action on Clarke’s bill occurred in late March when it was referred to the Subcommittee on Higher Education and Workforce Training.
Another bill sitting in the House awaiting action was cosponsored by several members of Congress and would require financial literacy and economic education counseling for student borrowers. In the bill’s findings, it states: “According to the Financial Industry Regulatory Authority Investor Education Foundation, less than 1/3 of young adults (ages 18 to 29) set aside emergency savings to weather unexpected financial challenges.” It also states that 62 percent of high school students cannot pass a basic personal finance exam, and “financial literacy scores among future higher education students are low.”
In the Senate, Democrats Dick Durbin of Illinois and Tom Harkin of Iowa introduced the Know Before You Owe Private Student Loan Act of 2012. It amends both the Higher Education Act and the Truth in Lending Act to strengthen requirements surrounding private student loans. Private lenders would have to obtain information before issuing a loan, including certification from the school that students have been fully informed of their financing options. Yes, that bill, too, awaits action in a committee.
Do you think any of these bills would help students get out of debt? Share your thoughts in comments.