Tuesday, December 4, 2012
Congress may look at overhauling collections in the $100 billion annual U.S. student loan program, and replace it with automatic withdrawals from borrowers' paychecks linked to their incomes.
The system, similar to what is used in the United Kingdom, in theory could mean the government would no longer need to hire private collection agencies, which commonly charge fees adding up to 25 percent to borrowers’ loan balances.
Legislation could be introduced in the House as soon as this week, according to Bloomberg News.
Payments under such a paycheck withdrawal system would be capped at 15 percent of borrowers’ income after basic living expenses. The Education Department would manage the withdrawals, with help from the Internal Revenue Service. It already has the power, without a court order, to seize a part of wages, tax refunds and Social Security payments to collect on student loans. There is no statute of limitations.
Student loan debt, currently at an estimated $1 trillion, exceeds credit card debt.
In the recent campaign, President Barack Obama praised the income-based program as a way to make it easier for students to pay back their loans, while challenger Mitt Romney said it encourages students to take on more debt.
Last year, 5 million borrowers were in default - meaning they had failed to make payments for at least 270 days -- on $67 billion in loans, more than twice the amount in 2003. Through the new system, based on experience in the U.K., 98 percent of borrowers could meet their loan payments through automatic payroll withholding, according to Wisconsin Republican Representative Tom Petri, who said he may introduce the bill this week.
Collection agencies, working for the Education Department or state agencies, received an estimated $1 billion in commissions last years. The agencies included SLM Corp., also known as Sallie Mae, and Pioneer Credit Recovery.
Congress may look at overhauling collections in the $100 billion annual U.S. student loan program, and replace it with automatic withdrawals from borrowers' paychecks linked to their incomes.
The system, similar to what is used in the United Kingdom, in theory could mean the government would no longer need to hire private collection agencies, which commonly charge fees adding up to 25 percent to borrowers’ loan balances.
Legislation could be introduced in the House as soon as this week, according to Bloomberg News.
Payments under such a paycheck withdrawal system would be capped at 15 percent of borrowers’ income after basic living expenses. The Education Department would manage the withdrawals, with help from the Internal Revenue Service. It already has the power, without a court order, to seize a part of wages, tax refunds and Social Security payments to collect on student loans. There is no statute of limitations.
Student loan debt, currently at an estimated $1 trillion, exceeds credit card debt.
In the recent campaign, President Barack Obama praised the income-based program as a way to make it easier for students to pay back their loans, while challenger Mitt Romney said it encourages students to take on more debt.
Last year, 5 million borrowers were in default - meaning they had failed to make payments for at least 270 days -- on $67 billion in loans, more than twice the amount in 2003. Through the new system, based on experience in the U.K., 98 percent of borrowers could meet their loan payments through automatic payroll withholding, according to Wisconsin Republican Representative Tom Petri, who said he may introduce the bill this week.
Collection agencies, working for the Education Department or state agencies, received an estimated $1 billion in commissions last years. The agencies included SLM Corp., also known as Sallie Mae, and Pioneer Credit Recovery.
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