Driving Change in Higher Education.

Details on the Student Loan Fairness Act

By Michael Flannery

2012-13 MSCSA Public Relations Coordinator

On March 21, 2013 United States Representative Karen Bass (D-CA) introduced legislation that combines the Student Loan Forgiveness Act with her Graduate Success Act titling it the Student Loan Fairness Act or H.R. 1330. 

How does the Student Loan Forgiveness Act propose to help students with their debt?

H.R. 1330 has a core proposal of capping borrowers’ monthly payments to 10 percent of their discretionary income and limit interest capitalization to 10 percent of the original principle of the amount of the loan. 

The act provides for tax-free forgiveness after 120 eligible monthly payments – the payments made under the 10-10 plan; payments that were not less than they would have been under the 10-10 plan; or “payments” of $0 during a month that a borrower reached deferment because of an economic hardship. 

If enacted, the bill could lend forgiveness of up to $45,520 in principal and fees plus any interest that has accrued for students who took out their loans on or after the date of enactment. It encourages students to limit their borrowing as much as possible and also encourages universities, colleges and other higher education institutions to control tuition and other educational costs because the forgiveness is capped and not currently indexed to inflation. 

If passed, students who took out loans before the date of enactment and who did not benefit from this legislation can earn full loan forgiveness. Some former students would be eligible for full and immediate forgiveness as eligible payments made up to 10 years prior to the date of enactment can be counted towards being forgiven. 

The proposal would greatly simplify what is now an extremely complicated process for selecting a repayment plan as the Federal Direct loans would be defaulted to the 10-10 repayment plan for graduates. Also the law allows a year for former students to convert private loans into a Federal Direct loan, however for conversion eligibility a borrower must have been eligible for a federal loan at the time they took out a private loan and have a current gross income less than their total education debt. 

All federal loans would be limited to a 3.4 percent interest rate and allow unemployed graduates to defer repayment without accruing interest on their unsubsidized loans; students only have a 3.4 percent cap on subsidized and Perkins loans currently. It also improves Public Service Loan Forgiveness by forgiving the loans after five years instead of the current 10-year minimum for those students committed to pursuing a career in public service and makes repayment plans tax free for the long-term forgiveness of the Income-Contingent Repayment, Income-Based Repayment and Pay As You Earn programs.

A petition was started on social media in regards to the bill which garnered over 100,000 signatures in one week, currently 37 million Americans are affected by student loan debt. On April 25, 2013 to highlight the anniversary of total student loan debt reaching over $1 trillion Reps. Karen Bass (D-CA) and Joe Courtney (D-CT) joined advocacy groups and student leaders at a press conference in Washington, D.C. to rally behind the bill. 

Will this legislation even be brought to the floor for discussion let alone passed? Time will only tell. 

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