Cohen, Davis and Swalwell Introduce the Private Student Loan Bankruptcy Fairness Act
WASHINGTON, DC – Congressmen Steve Cohen (TN-09), Danny Davis (IL-07) and Eric Swalwell (CA-15) today introduced the Private Student Loan Bankruptcy Fairness Act. This legislation would restore fairness in student lending by treating privately issued student loans the same as other types of private debt are treated in bankruptcy. Until 2005, this type of student loan debt was dischargeable in bankruptcy, but a change to the bankruptcy code that year removed that consumer protection.
“People who seek a higher education to better their futures should not be discouraged from doing so by the threat of financial ruin," Cohen said. "No one wants to declare bankruptcy, but 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 face the unexpected strains of layoffs, accidents or other unforeseen events, they will be protected. Our bill would provide that assurance.”
“The 2005 bankruptcy restrictions penalize borrowers for pursuing higher education, provide no incentive to private lenders to lend responsibly, and likely affect African American borrowers more negatively than other borrowers,” Davis said. “I am proud to join with my colleagues to ensure that our statutes do not unintentionally burden particular groups of people. Private education debt is no different than other consumer debt; it involves private profit and deserves no privileged treatment. I will work actively with Senator Durbin and Congressman Cohen to protect student borrowers.”
"Too many Americans are having to defer their dreams – starting a family, buying a home, launching a business – because they’re mired in student loan debt,” Swalwell said. “By treating privately issued student loans like similar types of debt, the Private Student Loan Bankruptcy Fairness Act will aid borrowers who have fallen upon tough times, will encourage more Americans to pursue a college education without fear of financial ruin, and will restore many Americans’ freedom to dream.”
Before changes were made to the Bankruptcy Code in 2005, only government-issued or government-guaranteed student loans were excluded from discharge in bankruptcy. This protection was intended to safeguard federal investments in higher education. Today’s bill would restore the bankruptcy law pertaining to private student loans and allow them to be discharged in bankruptcy.
Private student loans lack the critical consumer protections that come with federal student loans. For example, private lenders are not required to – and typically do not – provide any of the deferments, income-based repayment plans, cancellation rights or loan forgiveness programs that are available to federal student loan borrowers.