Senate bill would waive student loans in bankruptcy

Student loans have long been exempt from the protections offered by bankruptcy, but a new Senate bill would change that. The move come as the White House and lawmakers are working on multiple fronts to attack what is being called a student-debt crisis. 

|
Jonathan Ernst/Reuters/File
US Senator Richard Durbin (D-IL) (L) and Senate Minority Leader Harry Reid (D-NV) (R) hold a news conference after weekly party caucus policy luncheons in Washington. Durbin is sponsoring a bill that would give student loans protections when borrowers file for bankruptcy.

Private student loans would no longer be exempt from protections when borrowers file for bankruptcy under a bill introduced in the U.S. Senate.

The effort, sponsored by Sen. Richard Durbin of Illinois and signed by 12 other senators, comes as the White House and lawmakers are working on multiple fronts to attack what is being called a student-debt crisis.

Roughly 40 million Americans currently carry student-loan debt, starting out with an average bill of $29,000, according to the Consumer Finance Protection Bureau.

Since 2005, people filing for bankruptcy protection haven’t been able to get student loans cleared. Before that, only government and secured loans were exempt.

“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 in a written statement. “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.”

“It’s time for action,” he added. “We can no longer sit by while this student loan debt bomb keeps ticking.”

According to Durbin’s office, borrowers currently owe $165 billion in private student-loan debt, which often has high interest rates and other fees.

When the law was changed in 2005, it incentivized banks to offer high-cost private loans to students who are sometimes unable to pay them back, Durbin said.

The bill, filed Thursday, would return the matter to the set of laws that had existed since 1978. Secured and government loans were the only ones that were exempt from bankruptcy protections under those statutes.

But those loans also have caps on interest rates, flexible payment options and, in some cases, opportunities to get balances waived entirely.

The fate of the bill is unclear. Durbin, and his dozen co-sponsors, are Democrats in a chamber controlled by Republicans.

On Tuesday, President Barack Obama rolled out a “Student Aid Bill of Rights” aiming to help make repaying student loans easier.

With the document, Obama ordered federal agencies to make a handful of changes to that effect. Among them, the Department of Education will create a website to let student loan borrowers file complaints and provide feedback about lenders, collection agencies and colleges and universities involved in collecting on their debt.

Also, companies that service student loan will be required to alert borrowers when they’ve fallen behind on their payments, or when they’ve been transferred to another collector.

Doug Gross is a staff writer covering personal finance for NerdWallet. Follow him on Twitter@doug_gross and on Google+.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Senate bill would waive student loans in bankruptcy
Read this article in
https://www.csmonitor.com/Business/Saving-Money/2015/0316/Senate-bill-would-waive-student-loans-in-bankruptcy
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe