NEW BILL COULD HELP DEBTORS WITH PRIVATE STUDENT LOAN DEBT
Posted on 02 06,2013
When a debtor enters into bankruptcy, the purpose is for that individual to be able to discharge certain debts that have become too financially overwhelming and to get a fresh start. Yet, one of the major forms of debt many people face today is generally not eligible for discharge today's bankruptcy law—that is debt from private student loans. Three U.S. senators are pushing to change that through a new bill. The proposed legislation, which is titled The Fairness for Struggling Students Act of 2013, is being cosponsored by Sens. Dick Durbin (D-Ill.), Jack Reed (D.-Ill.) and Sheldon Whitehouse (D-R.I.), as explained by a recent article by The Huffington Post.
According to the article, the government moved in 2005 to make private student loans ineligible for bankruptcy discharge, just as federal (or government-issued) student loans have been since 1978. The Huffington Post notes that student loan debt amounts to $1 trillion on a national scale, making it the largest form of consumer debt. Sen. Durbin's office released a statement explaining some of the key differences between federal and private student loans, according to the article. Federal student loans tend to have certain benefits for those taking out the loans, including lower interest rates, more favorable terms, more options for forbearance and deferment, and income-based repayment plans. On the other hand, private student loans tend to have interest rates that are much higher (often in the double digits), and they usually do not offer repayment plans based on income.
According to The Huffington Post news story, the bill comes after multiple government entities and other entities asked Congress to make it easier for debtors to use bankruptcy as a way of obtaining relief from private student loan debt. These entities included the U.S. Department of Education, the Consumer Financial Protection Bureau, the publisher of FinAid.org (Mark Kantrowitz) and the Institute For College Access & Success. Sen. Reed noted in a statement that passage of the bill would not only provide limited bankruptcy protection for students who took out private loans, but it would also help send an important message about responsible lending and borrowing practices.
According to an October 2012 report by The Project on Student Debt (an initiative of the Institute for College Access & Success), private student loans are considered one of the riskiest ways students can pay for college, particularly because these types of loans tend to involve the highest interest rates for individuals who can least afford them. The report, titled "Student Debt and the Class of 2011," cited national statistics that showed that 33% of individuals who received bachelor's degrees graduated from college with some level of private loan debt (an average of $12,550). Certain types of institutions, however, are known for having higher percentages of borrowing from the private lending sector—about 64% of those graduating from for-profit colleges did so with some level of private loan debt.
When looking at overall student loan debt, the report showed that 66% of seniors who graduated from college in 2011 had taken out student loans (an average of $26,600), and one-fifth of the graduates' debt consisted of private loans. At the same time, recent graduates also had to deal with a high unemployment rate of 8.8% in 2011.
With the proposal for the new legislation, it could become possible for graduates who are being buried in private loan debt to find relief and move forward with their lives. When that time comes, these individuals will need to consult with a knowledgeable bankruptcy attorney so they can take the best advantage of their options for loan debt discharge. Our firm, McCormick & Calderón has highly competent Virginia Beach bankruptcy lawyers who remain up-to-date on the latest changes in bankruptcy law. Our firm is able to assist individuals dealing with Chapter 7 bankruptcy and Chapter 13 bankruptcy, as well as those dealing with other debt-related issues. Call us today for a free case evaluation!