What if we told you Congress could reduce student debt burdens, inject billions of dollars into the economy, create jobs, and do so without it costing a fortune to the federal Treasury? Well, Congress can do just that by expanding and modifying the Department of Education’s existing student loan rebate program.
Currently, 65 percent of all college students take out some form of debt for education-related expenses. The average debt level of students at the time of graduation is over $24,000. This amounts to average monthly loan payments of approximately $250 over 10 years. Clearly, these households are in a lot of debt, which is constraining spending and holding back our economic recovery.
The Department of Education offers an interest rebate program for borrowers who make their first 12 monthly payments on time to help reduce student debt burdens and promote on-time repayment. Currently, the program is only eligible for borrowers in the federal direct loan program and not for the millions of individuals who borrowed through other federal student loan programs. What’s more, its effect is relatively meaningless to borrowers because the rebate is applied over the life of the loan and not all at once, reducing monthly payments by less than $3 on average.
Congress can provide an average increase of approximately $345 in disposable income for student debtors if it temporarily expands eligibility for the rebate program to nondirect student loans that it guaranteed and converts the rebate to an upfront, lump sum payment. And Congress could offer student debt holders who previously lost out on the rebate a second chance to receive it given the havoc the financial crisis wreaked on millions of Americans over the past four years.
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