Could a proposal before Congress for student loan debt forgiveness be a much needed break for college graduates in financial distress? Is this a short-term fix with long-term repercussions?
Senators Sheldon Whitehouse and Jack Reed of Rhode Island along with Senator Dick Durbin of Illinois have put a proposal before congress to reverse the 2005 legislation that made it impossible for college students to default on student loans.
Economic experts agree that young people graduating from college are in debt more than ever and are having a hard time getting out of that debt. The proposed legislation would give them that way out with loan forgiveness. Many recent college graduates are having to delay other investments for their futures such as saving for retirement or purchasing a home due to their high levels of student loan debt. This is even more so for those who have pursued post-bachelor degrees. According to information released from studies done for the legislation, student loans account for nearly $1 trillion of total consumer debt in the United States. As more and more students are taking on the burden of paying for their college education, the amount of debt from student loans has greatly increased in recent years.
As it stands now, if a person defaults on a student loan, they have to work their way through the legal system to satisfy the debt. This can cause them to possibly be denied future loans. With the new legislation, if they default on their loan, the debt is forgiven and they’re out of debt. However, this can also cause issues with your credit history as the default does remain on your record. The economic experts agree that while there is a serious downside to this it would definitely be an advantage to have the option.
One outcome of the proposed legislation would be that lenders would be forced to provide more options to students looking for school loans. Current legislation doesn’t put very much pressure on lenders to work out compromises with borrowers if they default on the loan.
With a divided legislature, the proposal is not likely to gain approval any time soon. Financial and economic experts agree that there is likely to be more pressure on Congress in the future as the amount of student loan debt continues to rise with increase in college expenses and students taking on more of the financial burden to pay for their education themselves.