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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 25, 2013

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Congress will once again be discussing changes for student loan borrowers.

Congresswoman Karen Bass has just pushed forward the Student Loan Fairness Act of 2013, which will offer up several benefits for both federal and private student loan borrowers.

According to a recent press release from the Congresswoman’s website, the act will create a “10-10” standard repayment plan in which borrowers would make payments for 10 years using 10 percent of their discretionary income. After this time period, their remaining debt would be forgiven.

Congresswoman Bass told us in an email that forgiven debt would not be treated as taxable income.

The act would also permanently cap interest rates for all federal student loans at 3.4 percent interest.

“What I know for sure is that there is certainly support for capping interest rates and many of the other provisions in this legislation from the people who are saddled with this debt,” she said.

Finally, the act would allow private student loan borrowers to convert their debt into federal direct loans. It would even suspend interest accrual for borrowers during times of unemployment.

Kevin Harris, Communications Director for the Office of Congresswoman Bass, told us in an email that private student loan borrowers would be eligible for conversions so long as they were eligible to receive federal student loans during the time they were enrolled in college. Eligible borrowers will also be required to have their average adjusted gross income from the last three years be equal to or less than their total federal and private student loan debt.

Bass said that her office is working to garner support from both Democrats and Republicans.

“I want to make sure these young men and women can participate fully in our nation’s economic growth and right now that’s not what’s happening,” said Bass. “For these young adults, student loan debt is hampering their ability to contribute to America’s economic growth as they are forced to delay decisions on purchasing a home, starting a business, or making smart investments because they are buried under the weight of student loan debt.”

While the Congresswoman was unable to speculate on the position that the student loan industry would take regarding the act, she did say that her motivation was far more humane.

“To me, the compassionate and moral thing to do is to give these folks a lifeline so that they can meet their debt obligations but not be saddled with additional unnecessary debt due to not fault of their own,” Bass said.

The Congresswoman recommends citizens sign the online form to become co-sponsors of the act and voice their support for the change in student loan policies.