Congressman Hansen Clarke Proposes Student Loan Relief Legislation
March 12, 2012
Public Service Loan Forgiveness After 5 Years
Public service loan forgiveness, which currently forgives all remaining debt after 10 years, will be amended to forgive the remaining debt after 5 years of full-time employment in a public service job. The definition of a public service job will also be expanded to include employment as a primary care physician in an area or population designated as a Medically Underserved Area or Population by the Health Resource and Services Administration.
3.4% Cap on Federal Student Loan Interest Rates
The legislation will cap interest rates at 3.4% on all new federal direct loans first disbursed on or after July 1, 2012. This includes new federal direct consolidation loans.
Refinancing of Private Student Loans
Rep. Clarke’s proposal will also allow certain private student loans to be refinanced into federal consolidation loans. To be eligible, the borrower must have been eligible to borrow from the unsubsidized Stafford or PLUS loan programs during the period of enrollment in which the private student loans were disbursed. The borrower’s total federal and private education debt must also equal or exceed the average of the borrower’s AGI during the previous three years. (Borrowers whose total education debt exceeds their annual income are considered to have excessive student loan debt.) The interest rate will be based on the weighted average of the interest rates on the loans that were consolidated, rounded up to the nearest 1/8th of a point, but will also be subject to the 3.4% rate cap on new consolidation loans. The legislation will provide a one-time opportunity during a one-year period following enactment to refinance private student loans that were originated before enactment of the legislation.