Kaitlin Schroeder, Staff Writer

Miami University has seen a 3 percent increase in students taking out loans and a 9 percent increase in students filing the Free Application for Federal Student Aid (FAFSA) compared to two years ago, according to the Director of Financial Aid Brent Shock. All students who file a FAFSA are eligible for a loan.

In addition, The Washington Post reported Sunday Americans 60 and older still owe approximately $36 billion in student loans.

In light of this increasing student loan debt, Representative Hansen Clarke (D-Mich.) introduced the Student Loan Forgiveness Act of 2012 to the United States House of Representatives March 8, hoping to stimulate the economy by decreasing high student loan debt.

The bill’s main feature is a loan repayment plan for federal loans. After 10 years of repaying student loans on this plan, excess loan debt is excused or “forgiven.”

The repayment plan is called the “10/10” repayment plan because for 10 years the borrower makes monthly payments of 10 percent of their discretionary income, which is savings remaining after taxes and necessities like food and shelter are paid for.

The borrower can also have a monthly payment excused due to an economic hardship and still count that month as a 10/10 payment.

However, the bill caps forgiveness at $45,520 in principal, fees and interest for student loans taken out after the bill is passed. The bill would provide people with immediate student loan debt forgiveness if they have already paid 10 years of payments greater or equal to the “10/10” payments.

Other features include capping federal loan interest rates at 3.4 percent and enabling certain students with private loans to convert them to federal loans, which, unlike private loans, are eligible for forgiveness.

It also would reduce the amount of payments required for eligibility for Public Service Loan Forgiveness, which is a similar plan already enacted for public service employees with loans.

Chair of the Department of Economics in the Farmer School of Business George Davis, said he feels the Student Loan Forgiveness Act could increase the amount of student loans taken out and worsen the amount of student loan debt in the United States.

“There is going to be more people who make poor decisions because the penalty for poor decisions has gone down,” Davis said.

When forming opinions, students should also consider where the money to pay for the loan forgiveness will come from, according to Davis.

“At the federal level, it’s hard to imagine your personal connection to the spending,” Davis said. “If you have student loans it’s easy to see the benefit side. It’s a little harder to visualize the costs.”

Davis said he thinks people should turn to a different solution for student loan debt.

“Some people made decisions that weren’t the best decisions,” he said. “Some because they weren’t thoughtful; some of them because they didn’t know any better; some of them because of just bad luck. Hopefully people can turn to other places to try to help them out of that situation.”

Rep. Clarke explained to U.S. News and World Report how the nearly $1 trillion of student loan debt has surpassed credit debt in the U.S.

“Because of soaring tuition costs, students often have no choice but to amass significant debt to obtain an education that is widely considered a prerequisite for earning a living wage,” Clarke said.

Shock said he does not think this comparison of student loan and credit debt gives an accurate perspective.

“I think that’s an unfair comparison between student loan debt and credit card debt, because credit card debt is consumer debt,” Shock said. “Student loan debt I think is better viewed really as an investment in your future … I would say that investing in your education is probably a safer bet than owning a home.”

Before Miami students can finalize their loan, Shock said all students are required to take an entrance interview, which is an online tutorial explaining when the loan has to be paid back, what a loan is and the implications of the decision to take out a loan.

When students leave Miami, they also attend an exit counseling session for loans where they are given a list of loans they have borrowed from Miami and more information about the loan.

“We’re always trying to get the message to students that you should only borrow what you need and just to stay on top of what they’ve borrowed so far,” Shock said.

Shock said he thinks there will be high support among young grads for the act but is skeptical that it will make it through Congress.

“I just don’t know how far it will go in today’s political climate,” Shock said. “The big issue is going to be can the United States government afford it.”

Miami graduate student Erica Archer, former director of external relations at the First Miami Student Credit Union, said she thinks the Student Loan Forgiveness Act could be a good thing for borrowers.

“I think it would be generally good for students because of the structure for what students can expect to pay,” Archer said.

First Miami Student Credit Union also gives financial education workshops for students. Archer said students need to think long term when taking out loans to help prevent putting themselves in a debt crisis.

“If we don’t pay attention that could have a huge effect on lifestyle after college,” she said.  

Comments