Nearly 15 percent of students who needed to start replaying their student loans in 2010 defaulted by 2013, according to the U.S. Department of Education. A Utah lawmaker is trying to reduce the pressure on some with defaulted student loans.
Sen. Peter Knudson, R-Brigham City, is proposing legislation — SB170 — that would cap wage garnishments for defaulted student loans at 10 percent of disposable income. The maximum for other types of loans is 25 percent under Utah law.
“In this economy education is very, very important, but one wonders if the indebtedness associated with the education is worth it,” Knudson said.
The issue was raised to Knudson by a constituent who has children with large student debts and is concerned that lenders may not be doing enough to keep costs down.
However, Knudson said he is not on a “witch hunt” or trying to portray lenders in a bad light.
“We’d just like to have a dialogue and see if there are things that could be done to lower the costs of education from the financial-funding perspective,” Knudson said. “I have found that in my years in the Legislature that sometimes you put a bill out there and it kind of makes people come to attention.”
Knudson expects lenders to raise concerns over the bill.
Howard Headlee, president of the Utah Bankers Association, said he is not sure which types of lending institutions Knudson is targeting or if the bill will affect many members of the association. He said he needs to meet with Knudson in order to discuss the proposal.
“We’re still trying to understand the concern,” Headlee said.
The bill also prohibits garnishing wages in order to repay student loans that a court rules “unconscionable.” Such a determination could be based on an “exorbitant” tuition for the quality and reputation of a school, misleading students about the quality of a school or a lender selling student loans that it knows are likely to never be collected as part of investment packages.
Most types of federal student loans go into default after 270 days without a monthly payment, but not all defaults lead to wage garnishments.