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Point | Counterpoint: Student Loan Forgiveness Act

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  Is the Student Loan Forgiveness Act a smart policy?

Editor’s Introduction: On 2012, Hansen Clarke (D-MI) introduced HR 4170, commonly known as the Student Loan Forgiveness Act. This policy sets a cap of 10% of their disposable income on student loan fees. After ten years, any debt left on the graduate’s loan is forgiven. So where does the money come from? The P/CP explains.

pcp1Point » Getting schooled in bad economy
By Josh Bond

The Student Loan Forgiveness Act will, in the end, only serve to pass the buck to future generations, and I am not willing to have my responsibilities handed down.

At the heart of the problem is the rising cost of tuition and the current atmosphere for funding and loan repayment options.

Working with graduates to manage their debt is one thing. Adding it to the national debt is irresponsible. As the federal government has taken on military endeavors, bank and industry bailouts, energy reform, and healthcare reform, the plate is already full.

The idea of a student loan bailout only stands to expand our debt and further contribute to inflation.   

Additionally, colleges have increased tuition partly to offset decreases in state funding and endowments as well as adjust for inflation, all of which will worsen with the passage of this bill. Also, schools have increased their spending in the areas of capital improvements, administration, and counseling while they compete for the best students.

Consequently, colleges do not have to consider tuition increases as a problem as students have access to readily available federal and private loans. That is simply a reality.

Private lenders have increasingly become a source for secondary education funding, and strangely enough many students have turned to private loans before exhausting other options.

Interestingly, the protection from bankruptcy that private lenders were granted in 2005, which takes away a significant portion of the risk assessment, has made them an aggressive contender for offering student loans, and many potential students are none-the-wiser.

However, the lender will maximize their profit potential, as businesses do, with high interest and harsh repayment terms at the expense of the borrower because the former does not have to consider the latter filing bankruptcy. The incentive for the lender to work with the borrower does not exist.

The demand for education is high and, in light of this, the student loan process should be taken out of the hands of government and put into the hands of private entities to compete without the protection from bankruptcy.

Tax incentives to encourage lending as well as terms that allow a student to get their footing at the time is most important- making the transition from school to the job market.

The relief we really need is in the form of jobs to repay our debts. Only a sound economy can consider subsidizing academic infrastructure and programs.

pcp2Counterpoint » Great idea for tough times
By Grant DeFrancisco

The Student Loan Forgiveness Act of 2012 has suddenly become a big issue in higher education today.

The act, called H.R. 4170, is a proposal that seeks to rectify the problem set out by the theory that, while college tuitions nationwide are rising, the rate of return on college degrees is falling.

It is well-noted that, where a bachelor’s degree would have sufficed a generation ago in securing a job, students now must seek a master’s degree, or a doctoral degree for the same job, thereby accruing more debt.

According to some top investors and economists, higher education may be the next ‘bubble’ to burst - perhaps larger than the housing bubble debacle. Total outstanding student debt is projected to surpass $1 trillion this year, according to The Economist.  

The act itself states that, a student can convert their private debt into federal debt, and then pay 10 percent of their discretionary (basically, money left over after taxes and essential spending) income for the next 10 years, and the rest of the debt is automatically forgiven.

This proposed bill stands for a few main points: first, to make student loan repayment simple and fair. Secondly, it stands to stimulate the economy.

Thirdly, to promote financial responsibility. Most importantly for the student population, it will lend a desperately needed lifeline to students who have fallen on hard times.

Universities nationwide have been inflating the cost of a degree, and now many students are having difficulty paying for their education, as evidenced by the ever-growing number of student loan defaults. This bill would lighten that burden, and cap interest rates at a low 3.4 percent.

On that note, the bill also seeks to protect student borrowers who have fallen on hard times - illness, unemployment, divorce - from rising interest rates and crippling payments.

The bill encourages entrance into public service, or professions students desire.

The bill falls under fire for its claims of slowing the economy. Opponents argue that the economic stimulus is not enough, and could be better spent by ‘giving’ the money to groups who are worse off and more likely to spend the money- but we’ve all seen the ‘benefits’ of corporate bailouts!

Surely, this bill would increase the purchasing power of millions of Americans and incentivize them to invest and spend their newfound money.

Current students are eligible for full forgiveness - future students would be eligible for up to $45,000 of forgiveness, to promote financial responsibility.

I implore all readers to research this bill and voice their support - the benefits far outweigh the costs.

Written by Josh Bond and Grant DeFrancisco | Contributing Writers

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