Student Loan Forgiveness Act of 2012
April 20, 2012


By Carlin Sack for

Like many graduates with student debt who are worried about paying off their student debt, you have probably been hearing about a bill that would allow forgiveness for student loans. It’s called the Student Loan Forgiveness Act of 2012 and below are a few highlights from it to keep you informed.

The act would establish a 10/10 Loan Repayment Plan – This pretty much means that loan forgiveness would be given to those who make 120 payments under this plan over the next 10 years after the act’s enactment (if it is indeed enacted). Each payment would be at least 10% of the graduate’s discretionary income. But even payments of $0 that were made due to months of economic hardship would still count towards the 120 payments until forgiveness. Also, if you have already been making payments on your student loans, they would count towards those 120 payments. Forgiveness would be limited to $45,520.

It would cap interest rates for new Direct Loans at 3.4% — This could be a significant change for graduates because, as we explored in a previous post, interest rates have a possibility of doubling to 6.8% this July if Congress does not act.

It would forgive loans of public service employees in half the time – By amending the current public service employee loan forgiveness program from 120 payments to 60 payments until forgiveness, the act creates a sort of incentive for graduates to become workers in the nonprofit or public sector.

It would allow some borrowers to consolidate private loans – If students were eligible for unsubsidized Stafford loans or PLUS loans, then they would be able to consolidate private student loans as Direct Consolidation Loan (which is a loan that is typically combined from multiple federal loans). The interest rate for these Direct Consolidation Loans would be capped at 3.4% as well. There is a catch though: graduates’ average adjusted gross income cannot be more than their total student debt in order to consolidate private loans.

The bill, which was introduced by Representative Hansen Clarke of Michigan on March 8, may help some graduates pay off student debt, but this may be at a great cost to the federal government. After the bill was introduced, it was referred to House Armed Services, House Education and the House Foreign Affairs committees. It is hard to tell if this bill will have large support as the majority of bills are not passed through and do not make it past this point.

Carlin Sack writes for and attends Northwestern University’s Medill School of Journalism