Chipping Away at Student Debt

There is now a growing consensus that college student loan debt is a problem, but solutions are still in short supply. I think one is worth supporting.

On March 8, Representative Hansen Clark (D-Michigan) introduced HR 4170, the Student Loan Forgiveness Act of 2012. It was inspired by Robert Applebaum?s Facebook petition, ?Forgive Student Loan Debt to Stimulate the Economy? ( Applebaum, a lawyer, started the page after seeing the news about the financial crisis and bank bailouts, and primarily oriented the campaign as an analogy to that stimulus. It has since become more an issue of fairness and equality rather than only stimulus for the economy. Which I believe is the right direction: education should not just be about jobs but about creating the circumstances for citizens to develop their capabilities, and student debt works against that goal.

The stated purpose of HR 4170 is, ?To increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes.?

It proposes several basic measures. One is that the interest rate be capped at 3.4 percent, near the prime rate, rather than go up to 6.8 percent, as it is scheduled to do. Another is that payments be capped at 10 percent of discretionary income?since loan repayment is hardest for those with low paying jobs or who are unemployed. Third, after being in the program created by HR 4170 for ten years, loans will be forgiven. (The bill uses the slogan of ?10/10? to summarize these two points.) Fourth, one can bring private loans into the program along with public ones (for instance, federal Stafford loans).

One big benefit of HR 4170 is that you don?t have to be current in your payments to join the program. This is a great improvement on HR 4872, the Health Care and Education Reconciliation Act of 2010, which instituted Income-Based Repayment. That bill, as I noted in a previous post, was a small step but far too limited: if you had missed one payment, you were no longer eligible for the program ever again. This is a draconian standard, since those who have missed payments probably need relief the most.

Also, with HR 4872, the amount forgiven is taxable. So, if you had $25,000 forgiven, you had to claim that as income, which is a rather dubious forgiveness?and would surprise many debtors. HR 4170 removes this condition.

The bill languished for a month with only five signatures but now has fifteen co-sponsors. That?s good news, and it would be even better if you pressured your congressperson to add his or her name.

I would only offer a few emendations. First, I believe that this bill should be called the Student Loan Fairness Act, rather than the Student Loan Forgiveness Act. While ?forgiveness? is the term of art for relinquishing unpayable loans, it implies that those under debt have done something wrong. Rather, they need to be treated fairly. If it is an American principle that all citizens have equal opportunity, student loans are impeding that chance. After all, one-third of graduating students do not have loans. Thus current college student loan debt is an instrument of class warfare, inflicted on the bottom. We need to realign the playing field so that all have equal access to and opportunity to go to college.

The Canadian Federation of Students recently put forward a paper with one strong reservation about income-based repayment schemes: it argues that such plans are not assistance but still lock people into their debt; they create a long-term debt burden; and they tend unfairly to affect women. I think that HR 4170, in correcting some of the problems of HR 4872, will give relief to many people in debt, but it is not a full solution.

Such programs should not be the limit of our imaginations. We need to think of higher education as aiming at something more and better than just getting a job and spurring the economy. Thomas Jefferson stressed that education was part of the franchise; a democracy requires not just that everyone can vote, but that people are educated so that they might deliberate rationally and make the best decisions they can. We need to resist the neoliberal idea that we should have loans in the first place, which privatizes the cost and puts it onto the individual, and reconceive education as a right of and a benefit to the public.

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