Student Loan Forgiveness Act Could Help Unfreeze Economic Growth

Student loan forgiveness is a pretty sensitive topic right now- with some people strongly advocating a kinder, gentler approach to student loans, while others feel that no matter how oppressive, loans should be paid back as they were originally termed in order to teach borrowers “responsibility.”

However, the one most visible part of the student loans issues is its scope- by all accounts, we’re heading for another big economic setback if we just allow the situation to continue without action. In the past decade, student borrowing has skyrocketed along with climbing college costs, and an entire “lost generation” is not starting families, buying cars, getting mortgages or otherwise contributing economically in the ways previous generations did. And by all accounts, the problem is actually way worse than even shrill news reports indicate- young people are drowning in a sea of debt before they ever have a chance to pay back the first cent.

Late in 2011, outstanding student loan debt surpassed $1 trillion in the US, which is even higher than the original high estimates. Among the reasons cited for the uptick are an increase in students due to high unemployment, the effects of cutbacks in state funding and a higher number of defaults and deferments due to the economic meltdown.

Earlier this month, Rep. Hansen Clarke (D-MI) introduced HR 4170, known as the Student Loan Forgiveness Act of 2012. Under the terms of the bill, some strong concessions (although forgiveness is a strong word, considering) would be given to borrowers to attempt to ameliorate the situation. Payments would be capped at 10% of a borrower’s income and bring forgiveness after 10 years of payments- still a significant chunk of change, but not as oppressive as the massive payments may debtors are crushed by.

Interest would be capped at 3.4%, half the 6.8% rate set to go into effect later this year. And provisions would be made for borrowers in low-income public service jobs, as well as for those who borrowed privately to refinance to federal loans. All in all, while it doesn’t entirely eliminate the obligation for borrowers, it looks like the Student Loan Forgiveness Act could provide some much needed breathing room.

All in all, do you think student loan forgiveness is an issue we should tackle now before it drags the economy down more?