A Senate bill introduced Jan. 23 would allow privately issued student loans to be discharged along with other bankruptcy debt.
S. 114, the Fairness for Struggling Students Act of 2013, is sponsored by Sen. Richard Durbin (D-Ill.) and is cosponsored by Sens. Al Franken (D-Minn.), Tom Harkin (D-Iowa), Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.).
In a release from Durbin’s office, private student loans were described as involving only “private profit” and resembling “credit cards rather than financial aid with uncapped variable interest rates, hefty origination fees and few, if any, consumer protections.” According to the Consumer Financial Protection Bureau, the average student owes $24,301 in student loan debt, with private student loans representing $150 billion worth of student debt of a total of $1 trillion borrowed.
“Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family,” Durbin said.
“It’s not only young people facing this crisis, it is parents, siblings and even grandparents who co-signed private loans long ago and are still making payments decades later,” the Illinois Democrat said. “It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.”
Harkin called student loan debt “the next mortgage crisis” and lauded a second bill reintroduced by Durbin and Franken that he co-sponsored, the Know Before You Owe Act of 2013.
That bill would require schools to counsel students before they take on private student loan debt and inform them if they have any untapped federal student aid eligibility. It would also require the prospective borrower’s school to confirm the student’s enrollment status, cost of attendance and estimated federal financial aid assistance before the private student loan is approved.
“By empowering students with clear guidance about their federal financial aid options before they turn to more expensive private loans and restoring the option to discharge private loan debt through bankruptcy, the Know Before You Owe Act and the Fairness for Struggling Students Act will go a long way to help students make smart choices and provide relief to borrowers,” Harkin said.
“Students need to know how to avoid the higher interest rates and less favorable terms of private loans, so they can be on more stable financial footing when they graduate,” the Iowa Democrat said.
Both bills died in the Senate last year after being referred to committee; House versions didn’t advance any further.
CUNA said it estimates around 300 credit unions currently offer student loans to their members. Senior Vice President of Legislative Affairs Ryan Donovan said the trade hasn’t yet taken a position on the bankruptcy bill, but said CUNA is “generally concerned” with any legislation that proposes changes to bankruptcy laws.