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Expected Bold Student Loan Reforms in 2019

ElitePersonalFinance

Last Update: September 9, 2021 • College Students •

With the American presidential elections almost here and more than before, there’s one topic that will top headlines-student loan debt. The debt currently stands at more than $1.5 trillion, and without a doubt, it will be among the top issues of the discussion by the contestants on the campaign trail.

Studies show that over 40 million Americans owe student loans. And being that students make a considerable population of voters, the candidates will need to come up with bold policies and proposals that will appeal to this group of voters. The candidates know that they’ll have to stand out to the voters.

Below are some reforms you can anticipate in the coming days regarding the student loan debt.

College Studies Free of Debts

There are several calls and proposals to subsidize or eliminate college tuition fees at public universities as we speak.

House Democrats have already forwarded their proposal for the Aim Higher Act. This increases grant-based federal help and avails federal financial incentives to the states to reduce tuition fees at the state institutions in return. So far, particular states have already implemented debt-free college programs ahead of the others. One such state is New York who has proposed free tuition at state colleges targeting students who hail from lower-income families and commit to remaining in New York even after graduating.

Loan Refinancing Programs

Addressing the recurring increase in student loan debt by advising students against debt-financed degrees will make an essential part of any student loan reform law. However, it’s a task for the legislators to adequately address the $1.5 trillion student loan debt already in existence.

The idea of helping borrowers hold the cost of repaying loans by the students would be a good program by the federal government that allows them to refinance their student loans. It should open a way for both federal loans and, potentially, private loan repayment at much lower interest rates.

A presidential candidate, Senator Elizabeth Warren, made this proposal back in 2014. However, it did not pass.

Supporters of this policy say it will drastically reduce the costs involved in the repayment of students’ loans. However, those against the system feel that it would benefit higher-income earners than their opposite counterparts. They (those against) give that the student loans made to parents and students who have graduated have higher interest rates than the credits for the undergraduate student.

Caps on Interest Accumulation

Reduction in the interest rates is one way of lowering the cost of repaying the student loan. Alternatively, capping the interest that can accrue on a student loan would say a percentage of the initial principal balance.

It’s not a new thing for students who borrow a loan to wind up paying back their initial principal balances many times during repayment because of an interest that accrues in the course of schooling and other deferments and forbearance periods. Sometimes, because of income-driven repayment plans with relatively low monthly payments. Inserting a cap on interest accrual would decrease the runaway balance, providing borrowers with time to complete the loans’ repayments.

Cancellation The Forgiveness on Student Loans

Most people do not believe that student loan interest and repayment reforms would not adequately address the student debt crisis. At the time of this article, some more robust ideas like the cancellation of loan debts by the student stimulate the economy are evident. They are fast coming into the picture in the mainstream political discussion.

While it would be like a “dream” to think of a possibility of wiping out $1.5 trillion in student loan debt, we could see a shoring up or increase in the number of student loan forgiveness programs.

Reforms in The Bankruptcy Cases

Student loan borrowers experience a major stumbling block in discharging their loans in bankruptcy because of the bankruptcy code.

There are calls for reforms to reinstate those who borrow to discharge their debt in bankruptcy, like any other consumer debt case.

However, some worry that for such reforms. Students with debts and even the recently graduated would flock to courts that handle bankruptcy cases with petitions to discharge their loans. The advocates believe that bankruptcy comes with hosts of negative consequences like social discrimination and deep-rooted credit damage. This is likely to dissuade many people from going the bankruptcy route immediately.

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