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During this repayment period, payments can be suspended during times of employment, giving hardship students a break from their student loan payments. Many people feel that student loan debt relief is a good idea, and is the only answer for student loan borrowers that have fallen prey to our sluggish economy. There are others, however, that feel that student loan debt relief is unfair, and that students who promise to pay back their loans should be held to a strict standard repayment schedule. A positive aspect of student loan debt relief is an improved future credit rating.
Student loans have always been an issue for college graduates who did not qualify for uncial aid, but the recent economic recession placed an extreme amount of added stress on student borrowers, because it is becoming increasingly difficult to continue to pay back school loans as jobs are being lost Student loan debts that reach default status can ruin the borrowers credit rating. Furthermore, until this debt is fully paid, the bad credit rating will stay on the students credit report (How Student Loans Impact Your Credit – 360 Degrees of Financial Literacy).
The student loan debt relief program resets the loan, even if it had been in default, thereby allowing the credit report to show a rent payment status. Because of this reset option, student loan debt relief may increase the students credit score, both immediately and over the long term. Improved credit ratings mean improved purchasing power for these students and this purchasing power will in turn help the U. S. Economy. Student loan debt relief can also greatly reduce or eliminate payments during times of hardship, therefore increasing the student borrower’s monthly expendable income.
Normally, due to the high cost of interest and fees, student loan payments can amount to over 15% of a student’s monthly income. The debt relief plan has a payment option called Income Contingent, and this payment option limits the payment amounts to 10% of the borrowers discretionary monthly income (Work with Your Loan Services to Choose a Federal Student Loan Repayment Plan That’s Best for You). This allows more of the student’s monthly earnings to be used for groceries, gas, and entertainment, which in turn will help the economy.
The student loan debt relief plan is also beneficial to American taxpayers. When a student loan goes into default, the loan agency attempts to collect the debt any way possible. However, if the borrower is in financial hardship, there will be little success in recovering the defaulted loan balance. Many times these loans are backed by a federal guarantee, and if recovery from the student cannot be completed, then American tax dollars eventually are used to pay the remaining loan amount (Guaranteed Student Loans).
The student loan debt relief plan keeps the borrower from default, and can eliminate the need to government intervention. The student is at least continuing to pay small amounts over the payback period, and may eventually be able to fully repay the loan. This will keep more government tax dollars available to use for other programs. One of the arguments against student loan debt relief is that this program may encourage students to borrow in an irresponsible manner, knowing that the program is available if they cannot repay in the future.
It is feared that borrowers may abuse the system, using it as a safety net, instead of a last resort (Common). Many see student loan debt as a “black and white” issue, and feel that a signed promissory note should be held to the letter, and that default should be regarded harshly, in order to discourage borrowing if to absolutely necessary. Another negative view concerning student loan debt repayment deals with the amount of loan debt that a borrower may accrue. With this new program in place, borrowers may feel free to borrow higher loan amounts, knowing that they will have a 25-year period for repayment (Reed).
This puts a heavy burden on the lending institutions, as far as the debt structure is concerned, since the larger loan debt load will be harder to maintain that smaller ones. The last critical view of student loan debt relief deals with the lending institutions themselves. Banking institutions originally offered student loans that were to be repaid within a 10-year period. The new student loan debt relief plan extends this repayment period to 25 years, and this will create a hardship on the banks that were the original lenders.
Since the recovery time will be much greater for these debts, these banks will have less available funds for future loans. Many feel that decreased lending power from the banking institutions may cause more stress on our economy in the long run. A large part of economic development rests in the ability of banks to keep owning money, and if cash flow from loan repayment slows, it can take a toll in future lending (Kitten). There are several possible resolutions to temper the conflicting views about student loan debt relief.
Strict guidelines could be put into place to govern how the debt relief benefit will be administered. This will help to prevent improper use of this program. Borrowers wishing to apply for debt relief should be asked to provide full disclosure of all income sources as well as other debt and bill information, to fully prove eligibility for the program. Placing yearly caps on student loan borrowing may help to prevent debt totals from reaching amounts that are impossible to repay in a 25-year time frame. Proposed loan limits could be administered by each financial aid office, depending on the tuition needs of each campus.
Implementing student loan counseling sessions provided by each college admissions office, as part of enrollment, could also guide students better on responsible borrowing. Finally, encouraging lending institutions to work directly with the federal student loan debt relief agencies to set goals for repayment plans could help with sluggish repayment issues. By providing a structured plan for payment times, the banks would be able to monitor how loan funds are repaid and maximize cash flow, so that future loans are not adversely affected.
Student loan debt relief can be an excellent source of relief for student borrowers facing hardship, if it is handled in the proper manner. Extended payment times and income based loan payment plans can keep many from default and future financial distress. Better credit ratings, increased purchasing power, and less taxpayer intervention are all positive aspects of this program. By addressing the negative opinions that are presented, such s borrower irresponsibility and critical lending issues, compromises can be made to ensure that everyone can reach a common ground.