Tuesday, December 4, 2012

The Issue of Student Debt

Student debt remains a central issue in throughout the country. The federal lending program allows for substantial borrowing, and with slow economic recovery and the rising costs of education, students have difficulties repaying the loans. With an increase in defaults, U.S student-loan debt rose by $42 billion to $956 billion in the third quarter.  

Because of the mounting debts, Congress will consider overhauling debt collection in the student loan program. Instead, it would be replaced with automatic withdrawals from borrowers’ paycheck tied to their income. This legislation will be introduced by Wisconsin Republican Representative Tom Petri this week. It would require employers to withhold payments from wages, up to 15% of an individual’s paycheck. The bill is meant to replace the current system, which allows private debt-collection companies to provide student loans. Debt- collection agencies, in partnership with the Department of Education, received $1 billion in commission. The bill claims this amount can be redirected to the federal government. These borrowing companies can harass student loaners in their attempt to collect. Even filing bankruptcy rarely allows loans to be cancelled. As a result, the cost of a student’s loan can grow quickly and reach enormous amounts.   The new bill would cap the amount of interest owed to 50%, which could help the interest amounts borrower’s ultimately pay. 

The bill is meant to shift the burden from taxpayers to students. In the past year, there have been 5 million defaults, amounting to $67 billion in loans.  The average debt of U.S students is $23,000; the number is expected to rise. The bill is seen as an opportunity to solve the problem  to overwhelming student debt. There are complaints about this legislation, mainly that it eliminates some low-income subsidies and forgiveness, key components in the current system.   The subsidies currently provided allow forgiveness for loans after an allotted time. Also, a major critique is it eliminates loan forgiveness through public service. If a graduate works in public service, after 10 years their loans can be forgiven. Because of this component, it would be difficult to get approval by Democrats.  The problem of student debt has occupied much of the political debate. This legislation attempts to find and resolution, and place the burden solely on the borrower.

http://www.bloomberg.com/news/2012-12-04/student-loan-collection-targeted-for-overhaul-in-congress.html 

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