Bill to Overhaul Student Loan Debt Collection Introduced in House

Bill to Overhaul Student Loan Debt Collection Introduced in House

December 19, 2012

House Representative Tom Petri (R-WI) introduced legislation on Monday that would overhaul debt collection in the $100 billion-a-year U.S. student loan program. The proposed bill, H.R. 6674, would essentially eliminate the U.S. Education Department's need to hire private agencies to collect student-loan debt, by replacing that system with automatic withdrawals from borrowers' paychecks.

Debt collection agencies working on behalf of the department have seen complaints against them rise sharply in recent years, as critics have complained that their tactics place undue burdens on borrowers, reports the Chronicle of Higher Education.

The new arrangement, which is similar to programs in Australia and Britain, would eliminate private companies that charge fees that add as much as 25 percent to borrowers' loan balances. Payments would be capped at 15 percent of borrowers' income after basic living expenses. Interest owed on the loan would be capped at half of the loan's face value at the time of graduation.

To offset the cost of capping interest, the bill would eliminate the in-school interest subsidy for low-income borrowers. It would also eliminate income-based programs that forgive loans entirely after 20 or 25 years “ and, after 10 years, for those who enter public service careers.

The bill now moves on to the House education committee for consideration.


Related Links:

H.R. 6674

AACRAO Transcript

The Chronicle of Higher Education

Michelle Cormier Mott

Government Relations