Rep. Hansen Clarke (D-Michigan) introduced legislation to the House that would enable students to be forgiven from student loans. The bill, The Student Loan Forgiveness Act of 2012, would forgive the debt of student borrowers who make 10 years of payments (no more than 10 percent of one's discresionary income). The bill and would also cap interest rates and protect borrowers who suffer financial hardship, such as unemployment.
Student loan debt, both private and public, has become an increasingly severe problem in recent years. In 2010, student loans, which now total more than $1 trillion, surpassed credit card debt in the United States. Since the economic downturn hit in 2008, unemployment has gone up considerably among recent college graduates and more and more students have been unable to pay back their student loans. Unlike most forms of credit, student loans are not dischargable in bankruptcy court.
President Obama did reform some aspects of federal education lending policy, but limited his reforms to public loans, leaving current debtors without any resolution. "These are steps in the right direction. Yet we need more decisive action to get America's 'underwater' students and graduates back on dry land," Clarke wrote in a recent op-ed for the Detroit Free Press.
Student debt and the lack of jobs for recent graduates has been a major focus of the Occupy movement.
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Hansen Clarke: Students in debt need relief, too, The Detroit Free Press
The financial tidal wave of 2008 left millions of American homeowners underwater, owing more on their homes than their properties are worth. This has decimated consumer demand and destroyed countless dreams.
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Yet homeowners are not the only group of Americans who find themselves "underwater." After decades of skyrocketing tuition and stagnant wages, American students and graduates now often owe significantly more on their student than their degrees are, in dollar terms, worth.
Over the past several months, President Barack Obama has announced a series of plans to address this problem, including an accelerated income-based repayment program and new incentives for states to contain costs. These are steps in the right direction. Yet we need more decisive action to get America's "underwater" students and graduates back on dry land.
The growing cost of getting a degree is at the heart of the problem. Public institutions, where a majority of students are educated, have steadily increased tuition as public financing has declined. Amid unprecedented state budget cutting, average public tuition increased by an astounding 8.3% in 2010 alone.
With many of their parents facing pay cuts or unemployment, students have had to take out more loans to cope with these quickly rising costs. The average borrower graduating from a public or private institution owed an unprecedented $25,250. Americans' outstanding student loan debt obligations are slated to soon exceed $1 trillion.
The problem is not just the immensity of the debt. It's the scarcity of opportunity for borrowers. While the unemployment rate for new college graduates stood at 9.1% in late 2011, a recent Rutgers University study found that only 53% of a random sample of recent graduates of U.S. four-year universities were holding full-time jobs. Even fewer were making use of their university-level skills.
That explains why delinquency and default rates for student loans are rising sharply -- even with income-based repayment programs in place.
Graduates are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance. Yet, unlike the debt from a home bought in the boom years, it is impossible to walk away from the debt incurred by getting a degree. Student borrowers cannot discharge or even refinance their debts in bankruptcy, regardless of how desperate their situations become. We must set these students free.
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