House Bill Would Make Major Changes in Student-Loan Debt Collection

A bill that Rep. Thomas E. Petri plans to introduce as soon as this week would essentially eliminate the Education Department’s need to hire private agencies to collect student-loan debt, by replacing that system with automatic withdrawals from borrowers’ paychecks. Debt-collection agencies working on the Education Department’s behalf have seen complaints against them rise sharply in recent years, as critics have complained that their tactics place undue burdens on borrowers.

The new arrangement, which is similar to programs in Australia and Britain, would cap borrowers’ payments at 15 percent of their income after basic living expenses. It would also cap interest owed on the loan at half the loan’s face value at the time of graduation.

To offset the cost of capping interest, the bill would eliminate some student-loan subsidies that help low-income families and borrowers.

Low-income borrowers would no longer be excused from accruing interest when they are in college. The bill would also eliminate income-based programs that forgive loans entirely after 20 or 25 years — and, after 10 years, for those who enter public-service careers, such as teaching or law enforcement. The new system would apply only to new loans.

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