Student Loan Interest Relief Act

Economy
1

The constitutionality and legality of the Biden-Harris Administration’s Student Debt Relief Plan have been the subject of significant legal and political debate.

Rather than focus on canceling the principal loan balances, I propose a Bill to Cancel All Outstanding Interest and Previously Assessed but Unpaid Capitalized Interest on Existing Public and Private Student Loans.

This bill would provide significant relief to student loan borrowers by eliminating the burden of interest that has accumulated or been capitalized over time, allowing them to focus on repaying the principal balance of their loans.

Summary of the Bill:

•	Scope: Cancels all outstanding and unpaid interest, as well as capitalized interest, on both public and private student loans.
•	Future Provisions: Prohibits future interest capitalization on public loans and restricts it for private loans.
•	Implementation: The Department of Education and the CFPB would oversee the cancellation and ensure compliance by loan servicers.
•	Borrower Relief: Credit reports must reflect these changes, and no adverse tax consequences will result from interest cancellation.

Section 1. Short Title

This Act may be cited as the “Student Loan Interest Relief Act of 2024.”

Section 2. Findings

Congress finds the following:

1.	The accumulation of interest and capitalized interest on student loans significantly increases the financial burden on borrowers.
2.	Capitalized interest often causes student loan balances to balloon, making repayment more difficult and contributing to long-term financial instability for millions of Americans.
3.	Reducing or eliminating interest on student loans would provide financial relief to borrowers and stimulate economic growth by increasing disposable income.
4.	Both public and private student loan borrowers are affected by capitalized interest, and a uniform solution is necessary to provide equitable relief.

Section 3. Definitions

For purposes of this Act:

1.	The term “public student loan” refers to any loan made, insured, or guaranteed under Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), including Direct Loans, Federal Family Education Loans (FFEL), and Perkins Loans.
2.	The term “private student loan” refers to any non-federal loan provided by a private lender or institution to cover post-secondary education costs.
3.	The term “capitalized interest” refers to any interest that has been added to the principal balance of a loan due to periods of deferment, forbearance, or delinquency.
4.	The term “outstanding interest” refers to interest that has accrued on student loans but remains unpaid as of the enactment of this Act.

Section 4. Cancellation of Outstanding Interest and Capitalized Interest on Public and Private Student Loans

(a) Public Student Loans:

1.	Cancellation of Outstanding Interest: As of the date of enactment of this Act, any and all outstanding unpaid interest on public student loans shall be canceled. Borrowers shall not be liable for the repayment of any such interest.
2.	Cancellation of Capitalized Interest: Any capitalized interest that has been added to the principal of public student loans shall be removed from the loan balance, and the outstanding principal shall be reduced by the amount of capitalized interest removed.

(b) Private Student Loans:

1.	Cancellation of Outstanding Interest: As of the date of enactment of this Act, any and all outstanding unpaid interest on private student loans shall be canceled. Borrowers shall not be liable for the repayment of any such interest.
2.	Cancellation of Capitalized Interest: Any capitalized interest that has been added to the principal of private student loans shall be removed from the loan balance, and the outstanding principal shall be reduced by the amount of capitalized interest removed.

Section 5. Prohibitiont of Future Capitalization of Interest

(a) Public Student Loans:

1.	No interest shall be capitalized on any public student loans after the enactment of this Act, including during periods of deferment, forbearance, or delinquency.

(b) Private Student Loans:

1.	No interest shall be capitalized on any private student loans after the enactment of this Act, unless explicitly agreed to in writing by the borrower, and subject to federal consumer protection laws.

Section 6. Credit Reporting and Consumer Protections

1.	Credit Reporting Agencies: All major credit reporting agencies shall be required to update borrower credit histories to reflect the cancellation of interest and capitalized interest under this Act. Any negative credit impacts directly resulting from unpaid interest on student loans shall be removed within 90 days of enactment.
2.	Borrower Notification: Loan servicers and lenders must notify all affected borrowers of the interest cancellation and revised loan balances within 60 days of the enactment of this Act.
3.	No Penalty for Early Repayment: Borrowers shall not be subject to any penalty or fee for making early payments toward their principal balance, notwithstanding any private loan agreements to the contrary.

Section 7. Implementation and Enforcement

(a) Public Student Loans: The Secretary of Education shall be responsible for implementing the provisions of this Act concerning public student loans. All necessary regulations and guidance shall be issued within 90 days of the enactment of this Act.

(b) Private Student Loans: The Consumer Financial Protection Bureau (CFPB) shall be responsible for implementing the provisions of this Act concerning private student loans and shall have the authority to oversee compliance and enforce penalties for violations by private lenders or loan servicers.

Section 8. No Adverse Tax Consequences

The cancellation of interest and capitalized interest under this Act shall not be considered taxable income to borrowers for federal tax purposes.

Section 9. Authorization of Appropriations

There are authorized to be appropriated such sums as may be necessary to carry out the provisions of this Act, including for administrative costs incurred by the Department of Education and the CFPB.

Section 10. Severability

If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of this Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

8 Likes
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Never. It was your idea to go pursue a degree that yielded little return. How about the government paying for my poor choices in stocks I purchased? How about gamblers relief? There are people who lost everything they own.

1 Like
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Danr,

Your argument seems to overlook some important distinctions between different types of financial decisions and the broader societal context of student loans.

First, pursuing a degree is often seen as an investment in one’s future, with the expectation that it will lead to better job opportunities and higher earning potential. However, the reality is that not all degrees yield the same return, and many graduates face challenges in the job market, including underemployment or jobs that do not require a degree. This is especially true in a rapidly changing economy where certain fields may become saturated or where economic conditions fluctuate.

Equating student loan relief to gambling losses or poor stock investments misses the point that education is fundamentally different. Education is often viewed as a public good that contributes to a more informed and capable workforce, benefiting society as a whole. Many students are driven by the hope of improving their circumstances and contributing positively to society, not by reckless decision-making.

Moreover, it’s important to consider the systemic issues surrounding student loans, such as rising tuition costs, predatory lending practices, and the lack of accessible repayment options. These factors can trap individuals in debt, regardless of their career choices.

Ultimately, discussions about student loan relief should focus on the structural challenges within the education system and the economy, rather than framing it as a personal failure akin to gambling or investment losses. Addressing these challenges can lead to a more equitable and educated society.

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I agree Erin, but unfortunately for us, it’s not illegal to be stupid. Too many stupid people walk amongst us.

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The subject isn’t about forgiving debt, but about eliminating the interest that makes loan payback impossible.

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Better yet, let’s just fix the problem. College is for employment and career training. Fully half of the courses required for a bachelors degree have nothing to do with the chosen career training. Eliminate those extraneous 20 courses and cut the cost of the degree by 50%. Then move most courses to online and eliminate many of the expenses associated with attending classes in a physical building (housing, board, transportation, etc.). Get colleges out of ancillary businesses, nearly all of which lose millions of dollars that get charged back to the institution’s customers (students) - intercollegiate sports teams, many research programs, medical and psychological clinics, as examples. These changes can bring down the expense of obtaining the employment training by 75% or more and negate the need for borrowing like we see today.

Does it occur to anyone that giving free college to people who borrow money is patently offensive to those who work to pay for college or who saved diligently for years to pay for college?

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I was going to create a new policy, but this is similar to my plan so I’ll just add some thoughts.

Existing Loans:

  1. No further interest will be accrued on loans.
  2. Reduce the current loan balances by an amount equal to the amount of interest accrued over the life of the loan.
  3. In light of section (2), add an administrative fee equal to 3-5% of the total original balance in order to compensate government management of the loan.
  4. Adjust payment amounts based on the new balance and an accelerated payoff schedule of no more than 10 years.
  5. Allow borrowers who have been in default status for less than 3 years begin anew by removing any imposed penalties and garnishments.
  6. These above sections must be agreed to by the student loan borrower or no adjustments will be taken.
  7. Allow a one time discharge of student loans through Chapter 7 bankruptcy for borrowers in default status for 3 years or more.

Benefits:

  1. Reducing all accrued interest, less the administrative fee, would lead to many balances being completely eliminated.
  2. By reducing loan balances, eliminating the compounding effects of interest, and removing imposed penalties, many borrowers in default status would be encouraged to begin paying again.
  3. Allowing for just one repayment plan equal to no more than 120 payments will put borrowers on a reasonable path to repay their loans.
  4. Reducing loan balances and the minimum payment amount for borrowers will ultimately provide much needed economic relief for many.

New Loans

Remove the policies that the Obama administration put into place regarding government management of student loans. This policy lead to a number of issues including but not limited to:

  1. Higher tuition costs due to universities across the nation increasing their tuition costs to meet the maximum amount guaranteed by the government.
  2. Encouraged rampant fraud among “students” who enrolled in classes for the sole purpose of receiving student loans with no intention of ever paying them back.
  3. Burdened naive and unsuspecting young adults with large loans and decades of payments because easy money was served up to them on a silver platter.
3 Likes
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Fantastic!