Private Student Loans Get Bankruptcy Protection With Proposed Legislation
A coalition of Democratic lawmakers have introduced bills in both the U.S. Senate and the U.S. House of Representatives that increase fairness in student lending by ending bankruptcy protection for private student loans.
On May 26, Senators Dick Durban of Illinois, Sheldon Whitehouse of Rhode Island, and Al Franken of Minnesota introduced the Fairness for Struggling Students Act of 2011, while Representatives Steve Cohen of Tennessee, Danny Davis of Illinois, George Miller of California, and John Conyers of Michigan introduced the related Private Student Loan Bankruptcy Fairness Act of 2011.
The bills seek to roll back changes to private student loans that were made to the U.S. bankruptcy code in 2005. The changes prevented private student loans from being discharged in bankruptcy, a protection that had been granted for federal student loans in 1978 as a way to protect federal investments in higher education but which was not afforded any other type of commercial loan (“Durbin, Cohen and Others Introduce Legislation to Restore Fairness in Student Lending,” Office of U.S. Senator Dick Durban press release, May 26, 2011).
Unlike Federal Student Loans, Private Student Loans Offer No Safety Nets
Although federal student loans can’t be discharged in bankruptcy, there are repayment assistance, forgiveness, and relief programs for government loans, such as the Income-Based Repayment plan and the Public Service Loan Forgiveness program, which help struggling students repay their federal student loans. Private student loans aren’t eligible for any such borrower-relief programs. Typically, private student loans are avoided until all federal financial aid options have been exhausted.
“Students, especially those at for-profit schools, who find themselves unable to get enough government aid to pay their high tuition are turning to private loans to fill the gap,” Durban said in a statement. “Unlike federal student loans, there are few consumer protections available for these private student loans leaving some students stuck with this debt for the rest of their lives. Today’s bill will restore some fairness in student lending, by allowing financially distressed borrowers of private student loans to discharge those loans in bankruptcy, just as other types of private debt can be discharged.”
Private student loans have been the fastest growing and most profitable segment of the student loans industry for the past decade. Interest rates and fees on private student loans can be as high as credit cards. Overall, student loan debt outpaced credit card debt for the first time in 2010 and is expected to hit $1 trillion this year. Nationally, the average student loan debt burden for bachelor’s degree recipients is $24,000, yet only 56 percent of 2010 graduates were able to find work, resulting in many borrowers who are unable to repay their student loans (“Congress Proposes Relief for Student Loan Borrowers,” U.S. News & World Report, June 22, 2011).
“At a time when people all over the country are struggling to find jobs, we need to make the lending process more fair and make it more affordable for Minnesotans to invest in their education,” Franken said. “This bill will force private student lenders to follow the same rules as other private lenders and make it easier for people who need student loans to get them without putting their entire financial future at risk.”
The proposed legislation is supported by 35 groups and organizations, including the American Association of State Colleges and Universities, The Institute for College Access and Success, National Association of Student Financial Aid Administrators, and National Consumer Law Center.
Further Reading
S.1102 — Fairness for Struggling Students Act of 2011
H.R.2028 — Private Student Loan Bankruptcy Fairness Act of 2011
I am a 28 year old college graduate who is now a slave to student loan debt. I currently owe over $100K in private student loans to several banks and cannot afford my monthly payments. I have exhausted all deferral and deferment options and now my loans are going into default. With principal and interest combined, I will literally be working my entire adult life to re-pay these loans with no hope of ever owning a home or car.
I’m the first person in my family to go to college. My parents could not afford to help pay for my college education so, like many other students, I sought out alternative options. Lured into the thought of what I could accomplish with a higher education and the benefit it could bring to my family, I turned to private student loans to help finance what seemed to be a brighter future. Not fully understanding what I was signing or the ramifications it would have on my co-signing parents, I literally signed my family’s financial life away.
Daily my parents and I get calls from debt collectors who are threatening to take my parents home away if we cannot afford to make my student loan payments. Ironically, the amount of money I owe is enough to buy a house yet I don’t own anything. To be honest, I would be better off if I didn’t go to college at all. If I didn’t, I wouldn’t have this mountain of debt that will take most of my adult life to pay-off and my parents wouldn’t be at risk of loosing their house. How can we ensure the future success of our nation if it makes more sense not to go to college? There is something seriously wrong with our education system if college graduates end up thousands of dollars in debt upon graduation.
Let me be clear, I want to pay back my loans and have full intention of doing so. If my debt was a mortgage or an auto loan, I would have many more re-payment options. If we can somehow get private student loan lenders to be more lenient to borrowers the nation as a whole would benefit.
I am in the same boat pal. Save up and flee the country. That seems to be the only way these days.
Same here. First the graduate in my family. Under a mountain of debt. It’s a sad day when I have to look into taking out life insurance on myself just to protect my family from my debt in case anything were to happen to me before I pay off my loans. It would have been better if I had not gone to college at all.
I too, have been working hard to try and pay off this ungodly amount of money that is owed. I used Sallie Mae and since borrowing they have tacked on at least 30,000 in interest. I have a full time job as well as a part time job. It isn’t fair because I can’t live any sort of a life without the burden of this debt on me.
I’m in exactly the same situation as the rest of you. I work hard, pay my taxes, pay all my bills on time and still my student loans are the biggest burden in my life. Even if they were to take every cent in my salary and I were to live under a bridge I still could not pay them the minimum monthly payments. At this point I know that I wont be able to own a home, buy a car, etc. And at the end of the day what’s it all worth? To say I went to college? Less than 20% of the US population is college educated and so why cant we catch a break? Our economy is crashing and look at who is being punished. I have three months before I’ve exhausted all my deferments and at that point I feel I wont have anything to look forward to. There is no American dream anymore.
i started with $87,000 in student debt. In nearly two years, I have paid back a total of $17,000, 20 percent of my original balance. My current balance? $90,000, $3,000 MORE than my original balance. Wheres the finish line for people like us?
College education has reverted back to being a luxury for the wealthy. Unless you have some serious financial backing from your parents/family, attending a private university is just not a realistic option anymore for the middle class.
Like most of you, I feel suffocated everyday. Im underemployed, over educated for my job, and responsible for paying $800 a month knowing that I haven’t even made a dent in reducing my original debt total.
What options do we have?
I am there with you. My loan papers came in, i have exhausted all my options, my car payment is behind 2 months, im close to being evicted, and i have no money. My interest rate is 12% on my student loans. 12% thats insane. I did the math, on a ten year plan with my 147,000 in debt i would be paying back double plus 2/3′s on top of the principle so on a 147,000 loan i would repay a little over 300,000 where is the justice in that. Its robbery and they are getting the bail outs, its a joke and it needs to be dealt with today! We need an uprising, a revolt, petitioners, and we need to all stop bending over and letting these greedy pricks give us what they want.
I believe that one day private loans will again be dischargeable in bankruptcy. It’s a bubble that will eventually burst. Unfortunately for many of us who were young, we were not able to get these loans without a co-signer. In my case, it was my parents. Guess what? Even if they change the law, it will do me no good b/c they’ll just come after my parents instead of discharging. Great.
I try to think positive, but it’s a pretty harsh reality knowing I will never be able to own a house or consider having children. I can afford neither. I am a law school graduate who could not find a legal job back in 2008 (got my bar results two days after the financial meltdown- yay me!). Now two years later, I have basically forgotten my legal education. It doesn’t matter anyway– lawyers are being laid off not hired. I do appreciate the fact that I was able to fall back on my previous career and eek out 55K per year. Sad thing is–after paying on my loans and rent, etc., I have 100 dollars left each paycheck. I am not a consumer by any stretch of the imagination. That 100 dollars goes towards food and gas to get me to work. I feel like a prisoner—- student loans have destroyed my adult life.
Same here. I have over $80K in private loans, I work full-time and part-time, and I had to move back in with my parents to afford to be able to pay all of my monthly loan payments. What’s worse is that the payments aren’t even touching the principal of the loans, just the interest. One of my loans was for $27,000, and the loan company was kind enough to break down the payments over 30 years for me to point out that on a 30-year repayment I would be paying some $60,000 in interest in addition to the original $27,000 I borrowed.
My degree did not even get me a decent paying job :-/. What a waste. *Fingers crossed* that the bill gets passed and I can spend the next 7-10 years recovering from bankcruptcy vs. the next 30 living paycheck-to-paycheck and living with my parents!!
I don’t really have any sympathy for the stories here. As a person entering into higher education you should have been smart enough to look at the details and do some analysis on what it was going to do to you.
You took the easy way out and over indulged on schooling and now are complaining that your over indulgence is costing you? That exactly the type of big mac American mentality that got all of us into this mess to begin with.
You know what I did while you were living it up in college on borrowed money? I was dodging bullets in the Marine Corps to pay my own way. Taking online classes, reading books and writing papers while being shot at. When I got out I worked three jobs, living on my own in a run down apartment complex where people got taken away by the coroner every day.
I now have a Masters degree and no college debt. I live in a great neighborhood and am saving a truck load of money for retirement.
Quit your whining and pony up to the choices you made. Frigging ‘gimmie generation’ makes me ill.
I commend you for serving our country, but it is not for everyone. Some don’t even come back home alive from being in the military to even attend college. Consider yourself blessed.The grass isn’t always greener on the other side. You will never know till you have walked in that person’s shoes.
Brett,
Good for you, way to dodge those bullets! But you’re little rant isnt helping anything. We have a problem in this country with our student loan system and we need to work on fixing it. Every situation is different and there are a multitude of reasons why people borrowed private money for school. For instance, I am an older student that went back to school because of my company closing its doors and I had to borrow to continue my education. So instead of inflating your own ego you should focus on helping those who weren’t as smart as you. K
Nice rant dick, glad you are able to enjoy the benefits of a free education on my dime. Remember, you CHOSE to be shot at so don’t blow smoke up my a$$ with THAT pity party bull sh**.
There was a Marine base just outside the town where I went to school and every weekend after a college student got his teeth kicked out by an “honorable” Marine they would spout the same stuff “I fight for my country; I dodge bullets” and blah blah blah. Why don’t you guys find something else to fall back on? I’m happy my tax money went to pay for your college education. Now be deceased. (and yes, I said deceased.)
Compounded interest is robbery in this case a**holes. The fact that you felt like being a f***ing murderer in the Marines doesn’t really turn me on to taking part of a system the benefits the few and those willing to follow blindly into senseless wars. Wars we’ll all be paying for like those bank bail outs for your corporate buddies much longer then student aid reliefe. It’s simple, the system is bent, many people we’re sold into the idea that the candle burns at both ends. The government does the same. Time hit the reset button.
We all need to write a letter to congress and senators. They will only change the laws if we show we have an interest. This country is for the people, by the people, and of the people. We are citizens of this country. We need to make our voices heard. This is not a country of the United Private Student Loan Debts, we are the USA and we should not live like slaves, that is not the image of the USA. We need to make this known to the peopel we voted into office.