Ericka Davis of the Federal Reserve Bank of Dallas recently noted that "[o]ver the past decade, student debt has skyrocketed and delinquency rates have nearly doubled to levels much higher than for other consumer lending products." The impact of this debt and delinquency has been felt the most by young student loan borrowers, who now face lower credit scores and rates of home ownership that are the lowest since 1982, according to the U.S. Census Bureau.
With the Higher Education Act (HEA) currently up for reauthorization, the best way to fix this is for Congress to pass new provisions easing the student debt burdens of all borrowers. Here are five key elements of the Student Loan Fairness Act (H.R. 1330), sponsored by Rep. Karen Bass (D-CA), Congress should adopt.
- Provide forgiveness for borrowers who consistently repay their loans for 10 years or face economic hardship. The Student Loan Fairness Act proposes providing forgiveness of up to $45,520 for borrowers who make 120 payments that are at least 10 percent of their income or that constitute "payments" of $0 during months they were in deferment due to economic hardship. This would help ensure another generation has the capital to afford home ownership. Let's get on this, Congress.
- Cap the interest rates on all federal loans at 3.4 percent. The Bipartisan Student Loan Certainty Act of 2013 has moved student loan interest rates to a new market-based fixed rate based each academic year on the rate on the 10-year Treasury note, plus a set amount that varies depending on the type of loan. This is offering a moderate amount of help to current students, but it's at the expense of future students who will borrow in higher interest rate conditions. The Student Loan Fairness Act proposes capping the interest rate on federal loans at 3.4 percent. Congress should fix the shortsighted Bipartisan Student Loan Certainty Act and move to this low fixed interest rate. With the Federal Government projected to make 127 billion off student loans through 2024, we can afford it!
- Refinancing private education loans. Private student loans almost always lack essential borrower protections that federal loans provide. These protections include access to income-driven repayment plans, fixed interest rates (for the most part), and (all too often) forbearances or deferments to avoid delinquency and default. And, of course, only borrowers of Federal Direct Loans have access to 10-year Public Service Loan Forgiveness. The Student Loan Fairness Act would allow eligible borrowers to obtain a Federal Consolidation Loan and discharge their private loans. This would be an incredible help to borrowers struggling to repay their private loans.
- Interest-free deferment of unsubsidized loans during periods of unemployment. We all know that the economic recovery has been slow and employment has been particularly hard to find for young adults. According to the New York Times, 15 percent of workers ages 16 to 24 are unemployed, compared with 7.3 percent of all workers. But borrowers who defer their student loans due to economic hardship still have to pay interest on their unsubsidized loans -- meaning many of them will owe far more than they originally borrowed when they are finally able to find work and begin repaying their loans. The Student Loan Fairness Act would remedy this unjust situation. Congress must enact this provision as part of the HEA reauthorization.
- Make long-term forgiveness in the Income-Contingent Repayment, Income-Based Repayment and Pay As You Earn repayment plans tax free. Currently borrowers who diligently repay their loans in these income-driven repayment plans can earn forgiveness on what remains after 20 or 25 years -- but it is taxed as income. The Student Loan Fairness Act proposes fixing this so that borrowers who repaid their loans for decades would be protected from huge tax bills. Surely this something that both Democrats and Republicans in Congress can agree on.
What do you think? Let us know what Congress should consider as it reauthorizes the Higher Education Act in the comments below.
Isaac Bowers is Associate Director for Law School Engagement & Advocacy, overseeing the Student Debt, Student Engagement, and Law School Relations programs. He was previously responsible for the organization's educational debt relief initiatives. In that capacity, he wrote a weekly blog for U.S. News; conducted monthly webinars for a wide range of audiences; advised employers, law schools and professional organizations; and worked with Congress and the Department of Education on Federal legislation and regulations. Prior to joining Equal Justice Works, he was a Fellow at Shute, Mihaly & Weinberger LLP in San Francisco, where he represented citizen groups and local agencies in environmental litigation and land use and planning issues. Isaac received his J.D. from New York University School of Law.