Next year, university graduates struggling to make student loan payments may be spared from writing checks to collectors.That’s because, as Bloomberg reports, Rep. Tom Petri (R-WI) plans to introduce a bill which forces employers to deduct loan payments from wages in the same manner as taxes.
Under his plan, there would be a cap set at 15 per cent of the borrowers’ income.
Similar versions of this system are in place in the U.K., Australia, and New Zealand.
Though this may sound bad for graduates on the surface, this proposal is beneficial for borrowers because it reduces their total costs.
As Bloomberg’s John Hechinger writes:
Under the new system, the government would no longer need to hire private debt-collection companies and charge fees that add as much as 25 per cent to borrowers’ loan balances, leaving defaulted former students even deeper in the hole.
Last year, the Education Department and related state agencies spent $1 billion hiring debt collection companies.
Petri’s plan would make a few other changes. The maximum amount of interest owed on a loan would be capped at 50 per cent of the principal at the time of graduation — preventing an unpaid loan from skyrocketing. It would also peg the interest rate to Treasury market rates.
According to Bloomberg, Petri’s office indicated that the bill will likely be considered in early 2013.