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2:12pm April 30, 2012

Interest Rates?? What About Student Loan Forgiveness?

Student Loan Forgiveness Program

As expected, House Republicans voted to keep student loan interest rates low (who wouldn’t?) - but they did this by getting rid of a preventative health care fund intended for woman cancer screenings established by the Affordable Care Act. In a few months, the interest rate on subsidized Stafford loans was scheduled to rise to 6.8% from the current 3.4%.

President Obama took a firm position on higher education financing by asking Congress to freeze the student loan interest rates.  All this was cleverly timed while campaigning for the youth vote last week on college campuses.

But instead of looking to score election year points over interest rates, President Obama and Democrats should push for a more robust student loan forgiveness plan.

Congressman Hansen Clarke (D-Michigan) recently introduced H.R. 4170, the Student Loan Forgiveness Act of 2012. H.R. 4170 would create a 10/10 loan repayment plan, which caps payments at 10 percent of a borrower’s discretionary income and can offer forgiveness in 10 years. It would also cap interest rates on all federal loans at the current 3.4% rate.  A public service loan forgiveness program would also be established to assist borrowers who are working in public interest professions, which would offer loan forgiveness after 60 monthly payments instead of 120. And finally, some borrowers would be eligible for a federal loan consolidation to discharge private loan debt.

If the interest rates on federally subsidized Stafford loans doubles from the current rate, about 7.4 million students would be affected and the additional interest would cost an average of $1,000 more in payments overall. It’s estimated that a one year freeze on the loan interest rates would cost $6 billion.

Imagine the kind of purchasing power available if President Obama opted to help students save more than an average of $1,000 in payments by promoting a bolder student loan forgiveness program. Just using the GI Bill as an example: what was accomplished in financing education for some 16 million returning servicemen in the 1940s following World War II, economists found “that for every 1944 dollar invested, the country received approximately $7 in return, through increased economic productivity, consumer spending and tax revenues.”

If the period in which students are on the hook to repay loans is reduced and/or some loans are forgiven for those working in public service, people who had to borrow to attend college would have more money in their wallets. These borrowers could think about investing money elsewhere or maybe even consider starting a business on the side.

Ellen Brown of Truthout argues that the economy is in need of purchasing power and that funds used to service student loan debt could instead be purchasing goods and services. Orders for goods would increase with demand. In addition, production would increase and so would the hiring of new workers.

With a recent Gallup poll showing that younger voters may not bother to vote for President Obama - although they generally are supportive of him – the President and Democrats might want to go for a more provocative proposal on student loans such as promoting H.R. 4170 or something similar to it – instead of fighting over interest rates.   With students graduating into a poor job market, the President is going to have to do something to win over young people who may already feel disillusioned with the weak job market.



About the Author

Adriana Maestas
Adriana Maestas is the senior contributing editor of Politic365.com.




 
 

 
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32 Comments


  1. [...] rates soaring to 6.8 percent would affect 7.4 million Americans.Magic Number of the Day: 12BloombergInterest Rates?? What About Student Loan Forgiveness?Politic365GDP report puts Obama in economic 'gray zone.' Will Republicans [...]


  2. Nathan Cline

    Student loan forgiveness?? Absolutely not. I was not stupid enough to take out a Federal student loan, and therefore, I SHOULD NOT BE RESPONSIBLE for paying the debts of others who made poor financial decisions.

    Didn’t you read the fine print? YOU CAN’T ESCAPE from this debt; there is no bankruptcy, no forgiveness. It will follow you to your grave. The decision was yours to make and you will reap what you’ve sown.


    • Pat in CA

      you were just lucky enough to not need to take out student loans. some times, taking out a student loan is a necessity, not a luxury. You seem to think that these students took out loans so they can go party, when the loan is mostly used for tuition and living expenses.

      I took out student loans while holding down jobs to pay for college and grad school, I didn't just throw the money away partying, it's unfair for you to make generalizations about those that take out loans.


    • AJH

      This is an amazingly self-centered comment.

      Your claim that you were not "stupid" enough to take out a Fed Loan makes several erroneous implications.

      1. It implies that only those who can afford to pay for college out of pocket should go. This is beyond ridiculous in an educational environment where even in-state tuition at public schools can run up to $20,000 a year including room, board, and books. Also implied? That a college education is a "poor financial decision". Would it be better if the majority of the country stopped at high school? Dumb dumb DUMB idea.

      2. It implies that Federal student loans are the worst option. Actually, they're the best. The interest rates are vastly lower than private loans, and when the borrower runs into financial difficulties (such as being laid off during a recession), the government is more willing to work together to come up with a payment plan that the borrower can afford.

      3. It assumes, much like this article, that only undergraduate students are suffering. Your doctor is probably paying $1000/mo on student loans, and no – the average doctor does NOT make hundreds of thousands of dollars a year. In fact, the debt accumulated by ANY graduate degree is insane. Keep in mind that many professions require a masters at the minimum. The newly-minted teacher who wants to go into public school education has to have a master's degree. The people teaching at the community college has to have a masters degree. Welcome to another three years of debt.

      4. It assumes that tuition hasn't increased between 500-800% (depending on the source) since the 1980s. You probably could afford to pay for college when you went. It was a lot cheaper.

      Most insulting of all, it assumes that those of us paying over $1000 a month in student loans want a freebie "get out of debt" card. I'm stunned that you're missing how this benefits everyone. Every $1000/mo I'm not sending to student loans is $1000 that can be poured into the economy. It's a house payment. It's charity donations. It's local spending, it's savings, it's everything that the economy needs right now.

      Let me guess. Republican? Because they're the party that cares.


    • Evan

      Nathan you are small print and small minded. Of all the government bailouts and well-fare funded programs that YOUR money is spent on you should understand that this program atleast holds the debtor responsible to repay some of their loan and a college degree is something substantial unlike a food stamp buying cigarettes or lotto tickets. The only stupidity here is your outlook.


  3. adriana

    Thanks for your comment. Actually, federal student loan debt is discharged when a student dies, so it doesn't follow the borrower to his grave. However, private student loan debt usually does.


  4. [...] Interest Rates?? What About Student Loan Forgiveness?Politic365And finally, some borrowers would be eligible for a federal loan consolidation to discharge private loan debt. If the interest rates on federally subsidized Stafford loans doubles from the current rate, about 7.4 million students would be affected and …Editorial: Real 'cancer' in higher education is lack of affordabilitySTLtoday.comall 137 news articles » [...]


  5. Chalan

    my tax dollar for US students or aid to Pakistan???? students- Pakistan, students – Pakistan. Not even close. Give it to US students and keep interest rates low and a forgiveness clause after ten years, AND, don't take it out of women's health. Take it from foreign aid to fair weather friends like Pakistan, Saudi ArabiaEygpt and Isreal


  6. rspnsblemomof4

    Please no Loan forgiveness! What happened to personal responsibility? I am the mother of 4, 3 of them are of college age. My husband and I have worked our asses off, saved, and sacrificed for 30 + years. Our kids will not be graduating with debt because …1. We lived below our means. 2. We saved every spare penny we had for their educations. 3. Our kids worked their asses off in high school and got a few scholarship dollars based on merit. 4. We took into consideration the cost of their education when choosing their schools of higher learning. We have spent a fortune on college for our children!!!! No loans, no financial aid to speak of because we chose the path of personal responsibility and did not qualify. No tax breaks or credits because after 30 years on a career path of sacrifices and numerous relocations across the country in search of financial freedom for our family our income doesnt qualify us for any tax breaks. Now we too face uncertain times, DH has been restructured out of 3 jobs in last 5 years and is now working away from home and flys into town 1-2 weekends a month. No tax break for that!


    • CKale

      In the past five years, I've paid over $11,000 towards my student loans. Of that, $1000 has been applied to principle. Do not TALK to me about financial and personal responsibility.

      And for the record, I also worked my ass off in school, got scholarships, saved and sacrificed ON MY OWN. I didn't even have parents to do it for me. Nor do I have a house (no tax break there), or children (no tax break there), or a spouse to help out with the $1000/mo payments.

      You have no idea what you're talking about.


    • Matt

      Just know that we taxpayers are already on the hook for these loans. So should we just let it be and let them default and take on the full inflated value of these loans? Or would it be more prudent to find a way to allow repayment based on what is affordable for those who's only option for higher education wast to take out loans on tuition (that has also been grossly inflated in the last 15 years) with every intention of repaying? Some will get forgiveness, but if they do it will be at a fraction of the cost to taxpayers since they will be paying on these loans for 10 years prior to. Just think about it.


  7. rspnsblemomof4

    Our third child entering college this fall is our responibility and we will do our best for him as well. I understand some students need financial help and I believe it should be given to them. However, I have seen WAY too many parents live the high life, beyond their means and not save for college. The "Got To Have it Now" mentality despite not having the means to cover their desires. Not only the "Got to Have it NOw" but also the "Got To Have The Best" mentality……all with out responsibility!!! I know lots of parents who are bitching about their son's or daughters loans to private schools their children should have never attended in the first place….but they had to have the best to go along with their overly mortgaged beautiful decorated home, performance sports sedan, and boat. Know way to many people that fall into this category!!!!! Those loans should not be forgiven!!!!!!!!! Yes, there needs to be some kind of reform but I am tired of rewarding irresponsible behavior.


  8. dd5130

    My daughter graduated college last May and was lucky enough to find a job. Eight months later she was in the hopital with heart failure and had to have a pacemaker/defribellator installed. It turns out that she had a rare disease – Cardiac Sarcoidosis that affected her heart muscle. She will have to undergo 2 years of treatments to try to put it into remission and will have to deal with it the rest of her life. How about loan forgiveness for someone like her?

    She has to claim total disability or die in order for her loans to be forgiven. Right now she is trying to go back to work but her cardiologist will only allow her to work 12 hours a week. Her condition is chronic and she may never be able to work full time. Deferring the loans are not the answer. It's a shame that someone with an unexpected illness or even a terminal illness cannot get their loans forgiven but yet if she works in certain areas for a certain number of years she can get them forgiven.

    Where's the fairness in this scenario?


  9. Responsible4me

    Student loan forgiveness sounds like a great idea, until one realizes that the government doesn't have any money that it hasn't taken from someone. So in order to pay for this "benefit" to overburdened college grads, others will have to pay higher taxes. I worked my way through college, attending full time and working 2 and 3 jobs. After graduation, I paid off my student loans by living below my means. This is a foreign concept to most Americans anymore. I don't believe that those of us who live within our means should be forced to pay for those who don't.


  10. Steve

    My girlfriend has over 100k in student loans, has been looking for a job for the past 4 years and hasnt been able to find one in her field.

    she pays over 1000 a month for her loans and this has kept us from getting a house, starting a family and basically living.

    claim responsibly? easy for people to say when you dont have 100k hanging over your head, If anything were to happen (car problems, health problems, ect) she will be screwed.

    anyone who isnt for this is just plain selfish.


    • Responsible4me

      When choosing a college or university, shouldn't affordability factor into the equation? There are many ways to help finance a college education: state and federal financial aid, merit and need-based scholarships, working while in school. If a person chooses a college where they will incur tens to hundreds of thousands in debt, isn't their responsibility to research the earnings potential and employment outlook of their chosen field in relation to this debt burden? And if they choose not to do so, is it my responsibility to finance their "bailout?"


  11. True American

    True Student, True American: Part 1:
    The hardest part about this program is it doesn't solve the problem. In fact, in only exacerbates it. What is the problem? The federal and private loans are too abundant and easy to get. If it were harder, the schools would find ways to cut costs or raise funds for more scholarships. Administrators would have to use ingenuity to find ways to make education affordable and keep their schools afloat. Forgiving the debt would only make it easier to raise tuition and the cost of education and increase the national debt, which we all will then pay. We need to solve the problem, not put a Band-Aid on an infected wound.


  12. True American

    True Amercian, True Student: Part 2
    Now having said that, it is hard to be in my position. I did not have parents that could help me pay for school. I worked as a Janitor, teacher, cook, tutor, and many more jobs to save and pay my way through school. My parents did not make more than $30,000 a year while I grew up, but they encouraged me in my dreams of an education. I made it through undergraduate working full time with minimal aid, partially due to my parents increase income so I didn’t qualify. Now I am in medical school. I have a wife and three kids, and I continue to work to minimize debt. However, I am on track to graduate with over $250,000 in debt. This is not because I have been unwise with my money. My young family and I live on about $20,000 a year. The rest is educational expenses. I was recently turned down for a loan due to my debt to income level. I will have to pay over $3500 a month to pay back my loans. This program would do amazing things for my buying potential, but it would destroy opportunities for my children’s chance for an education.


  13. True American

    True American, True student: part 3
    You might say if the loans are forgiven, I could save for my children’s education with that money. This is wrong because first off the argument for the forgiveness is buying power, letting it work in the market to create jobs. (I understand the argument for investments and letting the money work, but that take time, and they are looking for people to spend money now.) Second, to pay for the programs they will have to increase taxes on everyone. So any benefit basically disappears. Third tuition will only continue to increase with no motivation for cost control and no matter how much I save, my children will be stuck in the same situation.
    Don’t borrow more then you can pay back. Be realistic with your earning potential. Don’t allow schools to charge whatever they want for majors that will never earn enough to pay back the money and live. If we remove all motivation for personal responsibility, we crush all ingenuity and creativity that has built America and made it the most powerful country in the world.


  14. rspnsblemomof4

    Student loans, like mortgages a few years back, seem to be given out like candy with no real thought to earning potential, choice of majors, etc. My children didnt necessarily follow their dreams or their passions when choosing majors…..they chose fields of study in which jobs are easier to find and they applied to and chose schools that were more affordable. When I chose the nursing profession for myself….it wasnt because I loved anatomy, chemistry and wanted to work nights, weekends, holidays etc. I chose the profession because I knew I could get a job. I was realistic. I would have loved to major in French or possible dance, my passions at 18….but try as I might I knew job opportunites would not be there. My children are also prepared to go where the jobs are…..many of their college graduate friends are not willing to relocate and insist on staying in our small rural area…..Seriously….and then they wonder why their top tier Liberal Arts degree that has them in substantial debt is not working for them.


  15. rspnsblemomof4

    Life is not fair. Life is full of sacrifices. I do not mind helping out those students that made wise decisions when taking out their student loans but seriously have a problem with the kids that took out 100k in loans to obtain graduate degrees in Anthropology and French Literature. Yes….I know personally these 2 young people. They could have obtained the same degrees for much less at our State University system. A loan is a loan…..more thought needs to be given to ability to pay them back prior to taking them out.


  16. Sam

    Student loan forgiveness is nonsensical and completely unfair to those who worked through college to pay for it, or those who responsibly paid off their loans. No one put a gun to my head and told me to take out loans to pay for law school. I own the debt I incurred and it would be selfish of ME to ask the government to pay off my federal loans at the expense of those who never took any loans or paid them off. I'm sorry but there is absolutely no excuse for having $250,000 in student loan debt.

    And yet people here claim that it's selfish NOT to have student loan forgiveness? Is it Opposite Day today?

    Maybe instead of flipping on loans, maybe we should talk about why people feel the need to take out loans in the first place? The cost of tuition has skyrocketed in the last 30 years, largely due to government flooding with, you guessed it, subsidized loans. Because there's so much financial aid or loans available to students, where is the incentive for colleges to keep their tuition rates competitive? I always hear about the military industrial complex; when are we going to talk about the educational industrial complex?

    The only piece of reform we need to have is to allow student loans to be discharged in bankruptcy. It'll destroy your credit rating, but you'll be debt free, and creates a incentive for lenders to be more frugal with handing own loans to everyone and anyone thinking about going to college.


  17. [...] fast.Christian Science MonitorStudent Loan Rates May Rise Regardless of Politics: FitchTheStreet.comInterest Rates?? What About Student Loan Forgiveness?Politic365al.com (blog) -AZ Central.comall 1,882 news [...]


  18. B.L

    Really students? What exactly do you think loan forgiveness is? Do you think the money just disappear into thin air? Someone has to pay for your horrible decision. And guess who that is…


  19. B.L

    "Imagine the kind of purchasing power available if President Obama opted to help students save more than an average of $1,000"

    Is the author really that clueless? By her logic, the government should just pay off my mortgage debt so I can have an extra $1500 to spend a month. Our purchasing power will increase, but so will our country debt. Yes, the government will get some of it back through taxes. However, your logic is as sound as our government attempt to spend money to get us out of dept.


  20. [...] Loan interest rate from 3.4 to 6.8 percent. For now, rates have been kept low – but at the expense of a health care fund for women’s preventative [...]


  21. Leah

    I am not for total student loan forgiveness but partial loan forgiveness with low interest rates are needed for those who are making payments. I went back to school to be more marketable in my field: to learn necessary skills and because many employers REQUIRE a Bachelor’s degree. If employers did not require Bachelor’s degrees, I would have happily gone to a cheaper community college instead. My program is not offered at the state college in my area. As a result, I had to enroll in a private school. I did not choose a private school because it sounded cool or fancy. If many jobs are no longer lost to overseas outsourcing and automation, more grads would have jobs with money to pay their debt. Universities should lower tuition to make education accessible to more people without loans.


  22. [...] moving to keep interest rates low for what amounts to only a fraction of current outstanding loans, some are calling for outright forgiveness of student loan debt after 10 years of [...]


  23. [...] to keep seductiveness rates low for what amounts to usually a fraction of stream superb loans, some are pursuit for undisguised redemption of tyro loan debt after 10 years of [...]


  24. I wish there was a way to help students with high loan amounts. Especially for those who were forced out of school for illness and then couldn’t finish once healthy.


  25. [...] are ideas that have been suggested before. Just last year, former Congressman Hansen Clarke (D-Michigan) introduced a similar bill that would have created a 10-10 loan repayment plan and cap the interest rate for federal student [...]


  26. [...] are ideas that have been suggested before. Just last year, former Congressman Hansen Clarke (D-Michigan) introduced a similar bill that would have created a 10-10 loan repayment plan and cap the interest rate for federal student [...]



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