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An Overview of the Student Loan Forgiveness Act

Attending college may be essential to finding a high-paying job, and students who are attending school are relying on loans to fund their college career. According to the Los Angeles Times, average 4-year student loan debt has risen from $17,200 to more than $27,000 upon graduation. While some students are staying current with their loans, the student-loan delinquency rate has risen just like all debt. To battle this ongoing debt crisis, a petition has been submitted with more than 670,000 signatures to convince Congress to pass legislation to forgive debt and bail out lenders. While the proponents of the Student Loan Forgiveness Act claim the legislation has the potential to benefit struggling graduates and stimulate the economy, opponents believe that this is not the right solution.

The Student Loan Debt Crisis Continues to Get Worse

After the housing market bubble burst in 2007, more unemployed professionals enrolled in school, applying for school loans to fund their degree programs. With more admissions came higher tuition costs and more student loan debt. While a college degree is believed to make a graduate more employable, the perfect storm hit when graduates’ loan payments became due and they were not employed. These borrowers had no choice but to default on their loans six months after graduating when the repayment cycle started. Presently, about 40% of all of the loans owed in the United States are in deferral status. This affects not only the lenders, but also the economy as official delinquency rates continue to rise.

Is the Student Loan Forgiveness Act the Solution?

When the housing market crashed and airlines faced bankruptcy, the government bailed out lenders and airlines to prevent a great depression in the economy. Borrowers are petitioning Congress to forgive educational loans. The premise behind this pending legislation is that increasing the amount of income graduates have to invest and spend will boost the economy.

If the bill were to be passed, a student who has made payments that exceed 10 percent of their income for the last 10 years may qualify for forgiveness. This standard is called the 10-10 standard. After qualifying by this standard, students will automatically be forgiven for the remainder of the debt so that they can invest in housing and contribute to the economy in other ways.

What Do Opponents Have to Say About the Act?

While more than 1 million students have signed the petition, opponents believe that forgiving debt that has voluntarily accumulated is a bad precedent that may lead to forgiving other types of loans. The fairness of this legislation has been questioned and business owners and others are asking why students are the only borrowers that should benefit from loan forgiveness.

Although the population is divided, forgiving student loan debt is an effective way to spur the economy and to encourage growth. With rising interest rates and exorbitant fees for delinquency, a student can be stuck with student loan debt for decades. This means that more money is going to the lenders and less money is going into the economy. By passing the Student Loan Forgiveness Act, students who have demonstrated that they have every intention to repay their debt can have some of their balance erased, which will contribute to a stagnant economy that needs a serious jumpstart.

About the Author:

Today’s guest article comes from Stephen Marsh. He writes on law, finance, personal savings, bankruptcy and other similar concerns. Those with legal needs pertaining to bankruptcy should contact Orange County Bankruptcy Lawyer.

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