Congresswoman Susan Davis Introduces Student Loan Relief Bills
As Congress gears up to renew the Higher Education Act, U.S. Rep. Susan Davis, the Ranking Member of the Higher Education Subcommittee, introduced two bills to provide student loan relief.
“The debt saddling students when they leave college hurts not only the students but impacts our economy,” said Davis, a senior member of the House Committee on Education and the Workforce. “Massive student debt makes it harder for graduates to buy a home or maybe venture out on a new startup. Federal student loans are an investment in our nation’s future. We need to be sure we are getting a good return on that investment by ensuring graduates can contribute to the economy when they leave college.”
The Eliminating the Hidden Student Loan Tax removes all administrative fees, which can range from one to four percent, on federal student loans. A parent taking out a $10,000 federal Parent PLUS loan to help send their child to college with a four percent fee would pay $400 up front.
As a result of the passage of the Health Care and Education Reconciliation Act of 2010, all federal student loans issued by the Department of Education were taken out of the hands of private lenders and issued directly by the Department. Despite the elimination of private lenders in the federal loan process, the Department of Education has continued to charge administration fees on student loans. This hidden tax adds billions of dollars to student debt every year.
The Student Loan Fair Prepayment Act would ensure that extra payments are applied first to the principal of the highest interest-rate loan, unless the borrower requests otherwise. This technical change would save borrowers a significant amount and help them pay off their loans more quickly.
According to the Consumer Financial Protection Bureau, one of the chief complaints made by borrowers is that their student loan payments are processed against their intent. Instead of applying prepayments towards the loan principal, as the borrower likely expects, loan-servicers will often credit the balance towards future monthly payments.
As the top Democrat on the Subcommittee on Higher Education, Davis will play a key role in crafting a renewal of the Higher Education Act.