Four Main Aspects of the Bill
There are four major aspects to this bill that will allow you to restructure and refinance Federal and private loans and set a limit or “cap” the interest rates on Federal loans as well. In some cases, private loans can be converted to Federal Student Loans. This is something that is greatly sought by borrowers of private student loans. Currently Federal Student Loans offer programs such as loan forgiveness, income based repayments, and easier ways to get out of default than private loans. This causes many private loan holders to be frustrated upon finding out about he wealth of programs available to some borrowers but not themselves.
Capped Interest Rates
First, there is the capped interest rate. The new rate on all Federal loans would be 3.4 percent. This is much lower than private loans and exactly half of the current interest rate on Federal Stafford Loans. This new rate will put less of a financial burden on graduates to begin with, giving them the opportunity to either start their own business or invest in an existing one.
Convert Private Loans To Federal
Second, those former students who have private loans will be able to consolidate their student loans into the William D Ford Direct Loan program and convert them to Federal loans at a lower rate. The new program is the Federal Consolidation Loan. Borrowers current loans would be paid off by the department of education and one new loan would be given under the the Student Loan Forgiveness Act.
Improved Loan Forgiveness Programs
Third, this bill decreases the time needed for Student Loan Forgiveness in the Public Sector Loan Forgiveness program. Most student loans are eligible for Public Sector Loan Forgiveness after 120 monthly or 10 years worth of payments. In the Student Loan Forgiveness act H.R 4170, Public service employees would now qualify after 60 monthly payments or only five years rather than the current 120 months. This will relieve the loan burden and allow them to purchase their own home or begin saving for their children’s education, breaking the loan cycle.
Improved Repayment Plan
Finally, there is the 10/10 Repayment Plan. This caps student loan payment amounts to 10 percent of the person’s discretionary income. Please note that is discretionary, not total income. Your payment would be calculated after accounting for the cost of living. The second number 10 refers to the number of years worth of payments needed to secure forgiveness of the remaining debt. This is the same way the current Income Based Repayment is calculated in the Direct Loan program. These 120 months worth of payments include the months when the person may have been in economic hardship and qualified for a zero payment. This is a huge improvement from the current system where only public sector workers would qualify for early forgiveness on the balance of their loans. Currently anyone in the Direct Loan program will qualify for forgiveness but its typically 25 years unless the loan balance is small.
For those students who secure their loans on or after the date this bill is enacted, you can have $45,520 in loan principal, fees and accrued interest forgiven once program requirements are met. For those students and graduates who secured their loans prior to that date, there is no forgiveness cap. This means that any payment you have made previously (and meets the requirements) will count toward your Student Debt Relief. For many people, this may mean your remaining loan amount could be forgiven in a very short amount of time, if not immediately.
Unfortunately, the Student Loan Forgiveness Act of 2012 has not been passed yet. There are many people that need the relief this bill can give them. Please contact your Representative in Congress and tell them to get the Student Loan Forgiveness Act of 2012 (H.R. 4170) out of committee and help hard-working people get back on their feet and moving toward a brighter future.