#OWS Changing Direct Loans to a 15-year forgiveness is one thing Obama could do in support of the movement.

A little known fact of the Federal Direct Student Loan Program is that the Secretary of Education has the ability to unilaterally change the amount of time a student debtor needs before a federally-backed student loan is forgiven.

As it stands now, in a new repayment system called “Income Based Repayment“, a person with student debt has to make payments for 300 months (25 years) before the government forgives the note. (If the payments made are enough to pay off the loan within the 25 years, then, obviously, there is nothing left to cancel. But in the case of many students and graduates these days, they are not getting around that debt for decades.)

There is a 10-year forgiveness for people who generally work for the government or in a Section 501(c)(3) nonprofit. But that is a different payback plan. I am talking about what can be done for the ones who didn’t use a heavily-subsidized state or local school, people among the “99%” who are stuck in really bad situations because of the overarching power of financial companies like Sallie Mae.

The authority of the Secretary of Education to change the 25-year period to something else is found here: http://www.law.cornell.edu/uscode/html/uscode20/usc_sec_20_00001098—e000-.html It’s 20 United States Code section 1098E(b)(7)(B):

(7) the Secretary shall repay or cancel any outstanding balance of principal and interest due on all loans made under part B or C (other than a loan under section 1078–2 of this title or a Federal Direct PLUS Loan) to a borrower who—

(A) at any time, elected to participate in income-based repayment under paragraph (1); and

(B) for a period of time prescribed by the Secretary, not to exceed 25 years, meets 1 or more of the following requirements—

[Emphasis added.]

The requirements listed have to do with what kind of payments have been made in the intervening period from the time the loan was established in the Income Based Repayment system to when the Secretary cancels the note.

As you can see, Congress has always allowed the Secretary of Education to modify student loans. So Obama could very easily change the terms, within the structure of the statute.

It would be a show of solidarity with Occupy Wall Street to say, for example, that student loans will never be more than 15 years. It is a step that Obama could take without the need of congressional action, because Congress already gave the administration that power.

It is time to use it!

[Update 3/19/12: Representative Hansen Clarke of Michigan has H.R. 4170 out there, which would cancel federally-backed loans after 10 years of 10%-of-discretionary-income payments. There is fairness/lookback provision for certain payments made before 2012.]

3 thoughts on “#OWS Changing Direct Loans to a 15-year forgiveness is one thing Obama could do in support of the movement.

  1. What happened, obviously, is that power was only used to change the terms for current students, to 10% of disposable income for 20 years. (This change had been scheduled for 2014.)

    Representative Hansen Clarke in Michigan is sponsoring H.R. 4170, “The Student Loan Forgiveness Act of 2012”, which would call for 10% of disposable for 10 years, and a 5-year rule for public service. That bill is bringing loans back to more what they were like in the 1960’s and ’70’s. Some fairness for the Tolerant Generation.

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