The burgeoning student loan debt in the U.S. has democratic Michigan Congressman Hansen Clarkeproposing forgiveness.
Under the Student Loan Forgiveness Act of 2012, Clarke would like the federal government to forgive a portion of outstanding student loans if borrowers show a firm commitment toward monthly payments.
“This bill provides that if a student loan borrower makes payments equal to ten percent of their discretionary income for a period of ten years, the balance of their federal student loan debt will be forgiven,” Clarke stated on the House floor March 8 while introducing his bill.
In 2012, student loan debt in the U.S. is expected to surpass the one trillion dollar mark, eclipsing all credit card debt combined. Clarke believes student debt is having a negative impact on the economy by preventing otherwise qualified borrowers from taking out loans for small businesses or new homes.
According to Honolulu realtor Richard Cricchio of Help-U-Sell Honolulu Properties, outstanding student loan debt can be a determining factor in whether a bank is willing to give you a mortgage.
“That's all going to factor in on your monthly payments of what your debt ratio is to what you can afford to pay for a mortgage,” said Cricchio. “It's almost as though the banks are trying to find a reason not to give you the loan.”
Some have even called the growing student debt crisis the next financial bubble, similar to the subprime housing bubble that burst in 2008.
“Could it have an impact on the economy? It certainly could,” said Gary Fujitani, executive vice president of the Hawaii Bankers Association. “Obviously, it doesn't take too long for educational costs to become a big burden on someone that needs to in fact borrow to finance their education.”
Fujitani believes before taking out a loan, college students and their parents need to weigh the pluses and minuses of certain college degrees as far as earning power. He also cautions borrowers to consider the cost of state run universities versus private or for-profit institutions.
“If you're going to take 'X' amount of debt, I think the rule of thumb is it should not exceed 10 percent of your projected income after you graduate from college. This debt could be with them a long period of time, so they need to be prudent in terms of how much debt they want to take on.”
According to the Project on Student Debt, Hawaii averages $15,500 of student loan debt, ranking it 49 out of 50 states. According to the non-profit organization, 38 percent of all four-year college students in Hawaii carry some amount of student loan debt.
Statistics show private lending for student loans is also making a comeback. Private loan volume declined to an estimated $6.3 billion in 2009-2010, but major lenders began reporting a return to growth in 2010-2011.
Unlike federal student loans, private loans carry higher interest rates and can be much more difficult to forgive, even during bankruptcy proceedings.