Student Loan Bill Could Disrupt Debtors

The 1 trillion dollars student loan debt problem is one of many facing U.S. Congress today. With close to 5 million borrowers already in default, the issue of how to resolve the economic crisis has turned to focusing on collecting what is owed. Since bankruptcy is not typically an option for dealing with student loan debts, many are left with few options. However, the potential for a new bill forcing collections could be even more detrimental to their already empty wallet.

Overhauling A Stalled System

Based on a similar system used in Britain, Congress is going to be considering a proposal that would require student loan payments to be automatically withdrawn from a borrower’s paycheck. As one of many proposals on the table, this system would allow for employers to withhold up to 15% of a borrower’s income to be paid directly to the student loan lender. The amount determined for withholding would be adjusted based on the borrower’s disposable income, or income left after deducting for basic living expenses. However, many are viewing this is nothing more than a form of government enforced wage garnishment.

Those in favor are pushing this system under the platform that borrowers would not have to deal with debt collectors, who often add 25 percent to an already defaulted balance; leaving the borrower further in debt. The elimination of debt collection companies would leave the Department of Education responsible for managing the collections, who would also be fielding negotiation and forbearance requests.  Further, the new plan would cap the interest owed at 50% of the loan’s face value at the time the borrower graduated, which could be less than the current 6.8 percent being charged to all borrowers of federal loans.