Private Student Loan Reform

Economy
1

The Private Student Loan Fairness Act

Section 1. Short Title

This Act may be cited as the “Private Student Loan Fairness Act.”

Section 2. Findings and Purpose

(a) Findings

  1. Many Americans are struggling with private student loan debt, impeding their ability to contribute to the economy.

  2. Excessive interest rates and limited repayment options have created a long-term burden on borrowers.

  3. Responsible reforms can provide relief while maintaining a stable lending market.

(b) Purpose

To promote fairness in private student lending without overburdening taxpayers or stifling private sector innovation.

Section 3. Voluntary Interest Rate Reductions

(a) Lender Incentives

  1. Lenders are encouraged to reduce interest rates on existing private student loans to a maximum of 5%.

  2. In exchange, lenders will receive federal tax credits proportional to the reduction in interest revenue.

(b) Borrower Benefits

  1. Borrowers who voluntarily consolidate their loans under these terms will be eligible for extended repayment plans and reduced rates.

  2. Borrowers with demonstrated financial hardship may apply for temporary interest rate freezes.

Section 4. Encouraging Long-Term Resolution

(a) Incentives for Early Repayment

Borrowers who pay at least 90% of their principal balance over a 10-year period will have the remaining balance forgiven.

(b) Shared Responsibility Programs

Lenders are encouraged to offer income-based repayment options voluntarily, with tax incentives for implementing borrower-friendly terms.

Section 5. Protections Against Predatory Practices

(a) Transparency Standards

  1. Private lenders must clearly disclose loan terms, repayment options, and total costs at the time of origination.

  2. Borrowers may request a one-time audit of their loan to ensure compliance with consumer protection laws.

(b) Default Rehabilitation

Lenders must provide a single, lender-managed program allowing borrowers to bring defaulted loans into good standing with affordable terms.

Section 6. Tax Treatment and Costs

(a) Loan interest reductions or principal adjustments made under this Act shall not be treated as taxable income.

(b) No additional federal funding shall be required for implementation, with costs borne by private lenders and offset by tax incentives.

Section 7. Effective Date

This Act shall take effect 120 days after enactment.

Key Features for a Conservative Approach:

  1. Voluntary Participation: Encourages lenders to act rather than mandating compliance.

  2. Tax Incentives: Relies on market-driven solutions and reduces direct government intervention.

  3. Borrower Accountability: Rewards borrowers who take steps to manage their debt responsibly.

  4. No New Federal Spending: Emphasizes cost-neutral measures to avoid taxpayer burden.