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H.R. 1330 – The Student Loan Fairness Act : Student Debt Crisis

H.R. 1330 – The Student Loan Fairness Act

The Student Loan Fairness Act | Rep. Karen Bass

To sign the petition in favor of this bill, please click here.

As you may know, total outstanding student loan debt in America has surpassed the $1 trillion mark.  It has outpaced credit card debt, auto debt, and is second only to mortgage debt in America. In fact, a recent study shows that student loan debt is the only type of consumer debt in America that has actually increased during the “Great Recession” and the problem only continues to worsen.

As a result of these debts, millions of Americans are not buying cars, purchasing homes, starting businesses, or otherwise realizing the American Dream.

The Solution

We need a fair and simple federal student loan repayment system which alleviates the financial burden of student loan debt on college graduates and supports them as they begin their careers and lives.

Summary

This new legislation will be a combination of two bills from the 112th Congress: Rep. Hansen Clarke’s Student Loan Forgiveness Act (H.R. 4170), as well as The Graduate Success Act (H.R. 5895).

This legislation would establish a new “10-10” standard for student loan repayment as the new standard repayment plan. In the “10-10” plan, an individual would be required to make ten years of payments at 10% of their discretionary income, after which, their remaining federal student loan debt would be forgiven.

The Student Loan Fairness Act would also combat crushing interest rates of public and private loans by capping federal interest rates at 3.4% and allowing eligible borrowers whose educational loan debt exceeds their income to convert their private loan debt into federal Direct Loans, then enrolling their new federal loans into the 10/10 . Borrowers would also benefit because the amount of interest that could capitalize while they were repaying their loans in the plan would be limited to 10% of their original principal balance.

This bill works to jumpstart the economy and adds to the public service workforce by rewarding students who enter public service professions and work in underserved communities with a reduced period for loan forgiveness.

The Student Loan Fairness Act also sends a lifeline to student borrowers who have fallen on difficult times. The bill seeks to ensure that no one will be pushed into poverty because of illness or loss of their job and extends interest-free deferments to unemployed borrowers of unsubsidized federal student loans and those enrolled in the “10-10” repayment plan.  It also seeks to replace the current, 10 year “Standard Repayment Plan” for the full amount of the loan balance with the “10-10” plan as the default repayment option for borrowers entering repayment.

The final component of the legislation promotes financial responsibility in higher education and incentivizes students to be mindful of educational costs and for colleges and universities to control tuition increases by limiting the forgiveness available to new borrowers on or after the enactment of the Student Loan Fairness Act.

Status

Introduction date: March 21, 2013.

Current Supporters

United States Student Association, The American Association of Collegiate Registrars and Admissions Officers (AACRAO), The Student Labor Action Project, NAACP, American Student Association of Community Colleges, and Student Debt Crisis.

FREQUENTLY ASKED QUESTIONS:

  • Does the bill cover private student loans?
    • Yes, if the eligible borrower’s adjusted gross income is equal to or less than their total educational debt.
  • How is “discretionary income” calculated?
    • Discretionary income is defined as the borrower’s and the borrowers spouse’s (if applicable) adjusted gross income exceeding 150% of the poverty line for the borrower’s family size as determined under section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)).
  • Would the forgiven debt be treated as taxable income?
    • No. In addition, the bill mandates that loan forgiveness granted under Income-Contingent Repayment, Income-Based Repayment and Pay As You Earn repayment plans will not be treated as taxable income.
  • What would happen if I am unemployed or become unemployed?
    • You would still qualify for enrollment in the program if you are unemployed or become unemployed.
    • For up to three years of unemployment, interest would not accumulate on your FFEL Unsubsidized Loans, Direct Unsubsidized Loans and consolidation loans you applied on or after the date of enactment of the Student Loan Fairness Act. This interest protection is currently only available for Direct Subsidized Loans and consolidation loans that only repaid Stafford loans.
    • Three years of interest protection is also available for your subsidized and unsubsidized loans if you are unemployed and enrolled in Income-Based Repayment.
  • 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 current borrowers.
    • For new borrowers, those who borrowed on or after the date the Student Loan Fairness Act was enacted, the bill imposes a debt forgiveness cap of $45,520 to incentivize students to make sound financial decisions and to encourage colleges and universities to lower the cost of their tuition.
  • How would the bill impact interest rates on student loans?
    • The bill would cap interest rates on new federal loans at 3.4%.
  • Would I still be eligible to enroll if my 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 in order to qualify for enrollment in the new 10/10 program.
  • What if I’ve already paid the equivalent of 10% of my discretionary income for at least 10 years?
    • Under the terms of this bill, those who have already paid the equivalent of a least 10% of their discretionary income over the prior 10 years totaling 120 payments would immediately qualify for forgiveness upon passage of the bill.
  • What if I’m enrolled in the Public Service Loan Forgiveness Program?
    • If you’re enrolled in PSLF, under this bill, your repayment period will be reduced to 5 years, rather than 10.
  • How are married couples’ incomes calculated for purposes of this plan?
    • For married couples who file their income taxes jointly, loan payments would be calculated according to their joint 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 me?
    • You would be eligible to enroll in the program.
  •  Does this bill provide any protections for interest capitalization?
    • Yes. The amount of interest that can capitalize for borrowers repaying their loans in the 10/0 plan is limited to 10% of their original principal balance.
  • Would this bill restore bankruptcy protections for student loan debt?
    • No, however, Rep. Frederica Wilson (D-FL) will be introducing a “Student Loan Borrower’s 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 whole host of much-needed reforms to the student lending system.

To read the full version of the actual bill itself, please click here.