Wednesday, September 15, 2010

Cohen Marks Up Bill to Restore Fairness in Student Lending

Wednesday, 15 September 2010

WASHINGTON, D.C. – Congressman Steve Cohen (TN-9), Chairman of the House Judiciary Subcommittee on Commercial and Administrative Law (CAL), today marked up legislation he authored to restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of unsecured debt.
“People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin,” said Congressman Cohen.  “The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected.  My bill takes a modest but important step toward achieving this goal.”

The Private Student Loan Bankruptcy Fairness Act of 2010 (H.R. 5043) was today marked up in CAL, which Congressman Cohen chairs.  Before changes were made to the Bankruptcy Code in 2005, only government issued or guaranteed student loans were effectively nondischargeable during bankruptcy.  This protection has been in place since 1978 and was intended to safeguard federal investments in higher education.

The Cohen bill would restore the pre-2005 treatment of private student loan debt in bankruptcy.  For the past decade, private student loans have been the fastest growing and most profitable part of the student loan industry.  According to the College Board, roughly 15 percent of total student borrowing is in private student loans.  Ten years ago, only five percent of total education loan volume was in private loans.

The interest rates and fees on private loans can be as onerous as credit cards.  There are reports of private loans with interest rates of at least 15 percent, and higher rates are not unheard of.  This can place a tremendous burden on student borrowers with private loans and, unlike federal student loans, there is no government-imposed loan limit on private loans and no public regulation over the terms and cost of these loans.

Private loans involve only private profit and do not have the protections that government borrowers enjoy, including caps on interest rates, flexible repayment options, and limited cancellation rights.  Most types of unsecured debts are dischargeable in bankruptcy, with only a few exceptions for very strong public policy reasons.  For example, the Bankruptcy Code makes it especially difficult for people to escape child support responsibilities, overdue taxes, and criminal fines.  Privately issued student loans should not be on that list.

Congressman Cohen is a longtime advocate of making higher education more affordable and accessible, most notably through the establishment of the Tennessee Lottery.

No comments:

Post a Comment