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Student Loan Forgiveness Act of 2012 (H.R. 4170)

The Student Loan Debt Crisis

Since 1978 average college tuition for a four-year college education has boosted a shocking 900%. At the same time, funding for college grants continue to be cut down. In situation like this, millions of students are forced to take student loans that are non-dischargeable in bankruptcy in order to pay for their college education. In addition to this, more than a half of recently graduate students find it impossible to find a full-time employment and at least one out of five students presently default on their student loans.

It is expected for total outstanding student loan debt to go over $1 trillion in 2012. This fact marks it as a serious financial crisis which can lead to another crush of global economy in the USA. People buried in their student loan debts cannot afford to buy a car or a house, to start they own business, or even to get married. Millions of individuals are failing to be engaged in economically motivating activities and this can have a devastating effect to the country’s economic growth. Possible way out of this situation may be The Student Loan Forgiveness Act of 2012 (H.R. 4170).

What is The Student Loan Forgiveness Act of 2012 (H.R. 4170)?

On March 8, 2012, Congressman Hansen Clarke of Michigan has introduced the Student Loan Forgiveness Act of 2012, H.R. 4170, in the House of Representatives. This Act is a legislation intended to help those who are under pressure of enormous amounts of their student loan debts. This Act is a hope for millions of Americans who struggle to pay off their loan debts. This is a petition for the House of Representatives to vote on this bill in 2012 and for the president Barack Obama to sign this legislation into law.

The Student Loan Forgiveness Act of 2012 (H.R. 4170) Outline

H.R. 4170, the Student loan Forgiveness Act of 2012 main points include the following:

  • 10/10 Loan Repayment Plan

This plan limits a payment amount at 10 percent of borrower’s discretionary income and provides loan cancellation in 10 years. In other words, H.R. 4170 would create a “10-10 standard” for student loan forgiveness which means that if you have paid 10 percent of your discretionary income toward your loans for previous 10 years your remaining federal student loan debt would be forgiven. Discretionary income is defined as the borrower’s and his/her spouse’s (if applicable) adjusted gross income exceeding 150% of the poverty line applicable to the borrower’s family size as determined under section 673 (2) of the Community Services Block Grant Act (42 U.S.C. 9902(2).

In case you have already been paying off your education loans, you can expect for your repayment period to be shorter than 10 years. The sum of the loan you have already paid off over the ten years would be credited in the direction of meeting the requirement for loan forgiveness.

  • Low Interest Rates

The bill would guarantee low interest rates on federal student loans by limiting them at 3.4%.

  • Refinancing Private Loans

The bill will also help those who took private student loans with high interest rates and whose student loan debts surpass their income by allowing them to convert their private loan debt into federal Direct Loans and obtain a Federal Consolidation Loan which will allow them to enroll their new federal loans into “10/10 program”. The only eligibility requirement is that your average adjusted gross income is equal to or less than your total student loan debt.

  • Public Service Loan Forgiveness

The bill would reward graduates for entering public service professions. Individuals who decide to enter teaching profession, practice medicine or go into public service can be eligible to have their student loans forgiven after five years of service.

  • Forgiveness Amount

Under the Act of 2012 there would be no caps on the maximum amount of forgiveness available for those borrowers who are presently in school or in loan repayment. However, the 2012 Act caps the amount for new borrowers that can be forgiven to $45,520 in principal of the loan and fees plus the interest accrued on the principal and fees.

  • Defaulted Student Loans

Borrowers who have their loans in default would still be eligible to enroll in “10/10 program”.

  • Federal Plus Loans for Parents

Parents who took out a Plus Loan for Parents would also be eligible to enroll in “10/10 program”.

  • Tax Exclusion

The amount of your eligible education loans forgiven will be excluded from taxable income.

Student Loan Forgiveness Eligibility

Repayment and forgiveness under the Student Loan Forgiveness Act 2012 only applies to federal student loans. If you are planning to consolidate your student loans, consolidate into a Federal Consolidation Loan since this would be eligible for the Student Loan Forgiveness Act’s 10/10 plan and Public Service Loan Forgiveness (PSLF).

Although the Student Loan Forgiveness Act 2012 has not yet been passed it already gained a huge popularity. One million people so far dedicated to a SignOn.org petition supporting H.R. 4170, the Student Loan Forgiveness Act 2012.

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