Private Student Loan Bankruptcy Fairness Act of 2010
The Project on student debt updates on student loans:
Yesterday the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law took a stand for students and consumers by passing the Private Student Loan Bankruptcy Fairness Act of 2010 (H.R. 5043). The bill reverses the unfair and unjustified special protections for lenders of private student loans enacted in 2005. There have been two hearings on the topic in the past year, but this was the first time this bill came up for a vote, and it passed 6-3 with no amendments. Under the new legislation private student loans would once again be treated like other consumer debt in bankruptcy.
and
The U.S. Department of Education released new data this week showing that the national “cohort default rate” on federal student loans is 7.0 percent. The default rate at for-profit colleges is highest at 11.6 percent – almost double the average rate for public colleges. Nearly half of all defaulters (43 percent) attended for-profit schools, even though these schools enrolled only about ten percent of all college students during the relevant time period.
Rdan–Didn’t Diane Feinstein’s husband used to run some sort of technical training company that somehow arranged for a whole lot of student loans? Liberals in CA thought it was a scam because of the amount of money the company made on these loans compared to traditional post secondary institutions was extremely high. Maybe I can find something on it. Nancy O.
http://en.wikipedia.org/wiki/Richard_C._Blum The company was ITT, a for-profit technical training outfit in Arizona and CA. Yes, I suspect the high percentage of students with large loans was the issue. FYI. NancyO.
This would have the effect of abolishing all private student loans, as no rational person would make such a loan if BK could pay it off. If one thinks about it if one is carrying student loan debt likley one has no assets so there is little to loose in BK. In particular at 25 there is little down side and lots of time to recover. THis is of course a good way to begin to pop the education bubble as the number of folks taking higher ed decreases.
Private student loans are a gamble that rewards higher interest rates and less forgiving terms. They are similar to small business start up loans that expect a high default rate, but keep america moving forward. That gamble pays off sometimes for lendors with big rewards, other times its a loss. Removing the ability to lose while still reaping the higher interest rates and less forgiving terms has broken the private student loan system.
“The default rate at for-profit colleges is highest at 11.6 percent – almost double the average rate for public colleges.”
Evidently public institutions produce higher earners.
Props on following this issue. Big time. It needs as much attention as it can get. I really don’t think people know as much about them as they should. For-profits have done a good job at bombarding the public with ads, but their outcomes are terrible. I’ve blogged about the student loan issue and for-profit colleges in the past. But the issue isn’t just isolated to for-profit colleges. Tuition rates at private non-profit universities are just absurd these days,
Yes, but the downside is our waitresses won’t have psychology degrees.
The for-profits’ students are frequently people who couldn’t afford to go to any post-sec school and are easy to scam. A lot of these courses are technical in nature and not offered at community colleges because there’s not a lot of money for the classroom space and equipment needed for them. Quite a few have internet training as well and that might be a good way to get people to borrow a lot of money for screen shots and power point lectures that really don’t get the people anywhere. Meanwhile, it costs as much to go to UC Berkeley as it does to go to Harvard. The idea of an attainable 4-year degree at a public school is pretty much dead.
Speaking of the UC university system, Feintstein’s husband is a Regent of the UC system. Registration fees (the equivalent of tuition in CA) have increased so greatly in the past two years that students have demonstrated in protest on several campuses. One of these is UCLA I think. My friend’s daughter is going to Berkeley this year only because her grandmother is footing the bill. Grandmama is rich. Has to be. Berkeley and Stanford cost about the same. Depends on what you want–El Camino Real and warm weather, or Robert Reich and the Beserkley City Council. Nancy O.
Yes its true if you insist on going to Berkley for all 4 years. Your local Community college can take care of 2 years of the 4 for much less. If in CA there is then the Cal State system.
Note that the item was about private student loans, not for profit schools. The for profit schools would not be affected by this since they get government loans for their students.
I actually think the metrics suggested should be applied to all schools, and report them on a major by major basis, so students can see which degrees (such as xyz studies let xyz be your favorite area) are worthless pieces of paper.
here’s my question:
why should the governement be stipulating in what sort of contracts private actors can willingly engage?
why not just allow choice?
a lender can offer one rate on loans erased by BK and another on lonas with more recourse. borrowers can choose which is appealing, and lenders can decide what the risks are and price accordingly.
the effect of this law will be to essentially end private loans for students (or at the very least to significantly increase their rates and tighten lending standards). is that really a desirable outcome?
If I am reading this correctly, it only returns the law to that in existence prior to the 2005 amendments to the bankruptcy Code.
So, if the loans existed then, they will continue to exist.
Yes.
One of the 2005 amendments to the bankruptcy code, was to extend the non-dischargeability of guarenteed studenty loans to any student loan. This (if it does what this says) gets rid of that relatively recent protection, that exists for virtually no other loans.
Since private student loans existed before october 15, 2005, I doubt it would essentially end anything.
The Bankruptcy Code is an inferred part of every contract. There is no limit on what kind of loans can be made, it just changes the terms back to pre-2005.
Why?
PSP-
have you seen what’s happened to both the volume and cheapness of governement loans? that legislation went through because the private guys were unable to compete.
private companies with their higher costs of capital and need to make a profit will not be able to price successfully vs governmtn give aways. how do you think freddy and fannie are getting 90% of mortgage origination?
take the governement out of the space and the private cos will do fine, but competing against sallie mae on price is impossible without adding in recourse.
Unless the private loan had a parent as a co-signer, making a private student loan would then be like making a million dollar mortgage loan to a burger flipper at a fast food joint.
As I stated at 25 there is little downside to BK, yes you get to live an all cash existance for a while, and can’t buy a house, but… You do get to keep 401ks and IRAs. Folks who go to college will figure this out and walk away. Recall that the original change was made after enough folks figured out that BK was a fairly painless way to walk on student loans. Of course the other way to walk is to emigrate.
What does this mean?
Yes the federal program will take over some, but not totally. The max a dependent undergrad can borrow is 31k and an independent undergrad 57k For grad school the max is 138k less undergrad loans and for med school 224k. Today one has to go to the private market to get above the limits (no federal involvement). With these limits a lot of schools would have to pony up a lot of financial aid, or loose students. The proposal might well be a way to pop the education bubble.
Greedy greedy pig fat cats…….eating cheetos in their corner offices raking in money. “Education – four year programs of absolute bull hockey…LOL” Banks loving it….and America destroyed. FAT CAT DIRTY RAT. If your dumb did wants to go to college, make sure he or she is an absolute scholar…not a borrower. Beat him/her over the head (senselessly if you have to) to just forget about the schooling and go into some techical field. Student Loan Bank Scams are the epitomy of the sick idea of captilism and the free market “phenomenon.” Greed Destroys and destroys fully.
You are thinking about this like a company, not like a person. People incur debts which they feel bound by personal honor to repay. Corporations will only pay their obligations if they are forced by the threat of legal action.
I see a collapse in the near future and it will be a very messy one too 🙂
Prior to 2005, private student loans were dischargeable. These are not federal student loans, which are guaranteed by the government. These are private loans, typically used for graduate degrees which cost more than could be borrowed under the federal loans. Since 2005 change, these loans are being treated like child support, income taxes less than 3 years old, debt as a result of fraud, DUI related personal injury debt. There is no reason why this debt should receive the special treatment afforded to these other special debts. Interestingly, the interest rates being charged on these loans was unaffected by the change in 2005. They neithe decreased nor increased, which puts a hole in any argument that these loans were priced while relying on their dischargeability. These loans have variable terms, cannot be fixed, and often have maximum interest rate of 20-25%. These loans are toxic to the borrowers. There is currently no escape from repayment. In fact, lenders can garnish wages, levy bank accounts, even Social Security benefits are ganishable. These loans follow you to your grave. They do not offer the same flexible terms of repayments as federal loans. They are unforgivable. Borrowers do not know what their repaymens will be and the true cost of these loans because of their variable rates.
More importantly, the bankruptcy law when considering whether a debtor qualifies for a chapter 7 bankruptcy does not even calculate these loan’s repayment into figuring out if the debtor can afford to pay their credit card debt. It’s as if these loans don’t even exist.
The effect is that although Bankruptcy is a constitutional right, people who borrowed for consumer goods may still have this right, not necessarily true for people who borrowed for education.
A lot of very desperate under and unemployed young professionals have very high private student loans and they eagerly wait to see whether this bill will pass. To the this is a chance to get out of slavery.
http://www.sdbankrupt.com
Simply not true, the law was passed on false info. The default rates at the time were not near as bad as they were made out to be. What we have now are loans being made in mass with terms that are imposable to meet. There are MILLIONS of people who can not afford to live with these terms, yet the lenders are safe bc they know you can never get rid of the loans. You really are looking at 30 and 40 year paybacks on a loan of 20,000. Its insane in every sense of the word. Also, the law in question was added to the main bill at the last minute and not a single member of congress has ever owned up to adding it. That tells me that even the people that added it in know that its a bad idea and made to enrich a few while the majority suffer.
I myself now owe, over 40,000 in private student loan debt. and have tried working with them and its almost in possible to work with them, They want what I pay in rent. And I graduated with a degree I can not use in this economy. I’m working a job that is unrelated and doesn’t pay well because there are no jobs. And now I’m married and have a child and can’t buy a house, or car. I have horrible credit because my loans went into default, because I could not afford to pay what they wanted. I have no way out. and really can’t move forward with my life. If this were to pass it would help make it so I can get a fresh start, Also when kids are in high school they should make it a point to educate people about private student loans!!!
WOW that hurts but in my current situation it seems quite true. Bearing a high GPA in school seemed promising although it didnt qualify me for much aid from the government due to many stipulations put on by the government at the time. NOW I have graduated… here comes the student loans which were of course private. The lender I chose at the time offered consolidation of these loans, now they dont. They also only offer one forebearance for 6months and then come the payments, they also dont allow any type of repayment option other then they payment amount they have demanded. The payment doesnt allow for a individual who has obtained an entry level position…so what is one to do?
The goverenment has changed the game and as a recourse all those who took out private loans are suffering because the government will only consolidate federaly funded loans and private lenders are nolonger offering consolidation, so whats left? DEFAULT, not even bankruptcy will save us. I feel like AMERICA has become a sinking ship of debt.I feel completly dupped by the system. Now I’m in question as to whether my debt was truely worth all the thousands and the 30 years of payments that resulted as my choice to be come “educated”.
AHMEN! This is my situation, your not ALONE! I truely hope that there is some relief soon for your sake and mine and the thousands out there who are suffering with huge debt and no relief.
I worked my butt off to pay off my student loans, all $60k. It wasn’t easy, but it was responsible. It makes me angry that people want the government to give them a “fresh start” by magically erasing all of their debt. What needs to change are these obscene interest rates. If you borrow $200,000, you should pay back every cent and there should be no option to get out of it. But there should be limits and/or a cap on how much interest you can be charged for any given loan. To me, that makes much more sense than totally absolving someone of responsibility in bankruptcy court.
Melissa:
Not aware of your circumstance; but, the fresh start comes after 25 years of not being able to pay and then it ends up as income. The student loan situation today and over the last deacde has been horrific to students. In many cases, you could have gotten a mortgage or cheaper.
i have been working my butt off and living like a student to afford the payments and all I’ve paid are interests. Every one’s situation is different and one should not be so ignorant.
I have a private student loan I took out as well with full intentions on paying back. I tried to stay on top of it for a few years but the payments went from 300 a month to more than 1300 a month and I could not afford it. To make things more interesting the loan org which was Teri filed for bankruptcy and is now no longer in business. But they still want my money and call daily. Every attorney I speak to for help seems to be scared to help because of the bankruptcy judge in this part of Louisiana. I wish there was some help fast. The last time I spoke with the loan company they told me the only way to get help was to just kill myself!
I am a victim of private school loan. I have begun to write at length about this. Please check out my link: http://churaumanieb.blogspot.com
Best wishes. C. Bissun
I am in serious debt from private student loans. I had no education on the interest rates and the lenders were giving out loans like candy back in 2006. It reminds me of the mortgage scam/crisis. They 100% for sure knew even with a co-signer most people can not afford to pay these loans and ACTUALLY LIVE IN THE ECONOMY. How do they expect people to survive. It is utterly ridicilus how greedy the lender are with people. They do not offer any type of help towards repayment. The law MUST go into effect, or they need to come down on the “excellent credit score of 800”. That is the only way people will be able to be approve for things because having these loans will never provide perfect credit because most can never make on-time payments. Its absolutely insane……….
Melissa,
I myself have borrowed a large amount in student loans with the full intention of paying them back with my parents assistance. However, due to this economy, they went from making $80,000 per year to $0 per year. I myself will not be able to find a job when I graduate all the while these loans increase in interest. It is not because of us that we are in this situation. It is because of the economy. At 17 and 18, we cannot predict the job market in the future or how it will impact us.
Either way, I know 100% for a fact that when i graduate i will make only $20,000 per year after loan payments. I will be a slave when I graduate. I will have no life. We must stop this.
It’s time to bring better education on how to prepare for college to high school FRESHMEN so that they can prepare throughout high school. It also is time to make high school into COLLEGE as it was supposed to be designed. High schools need to be modernized.
With over 10 million US jobs outsourced off-shore since the mid 90′s, there aren’t enough jobs available for college graduates. For those that can find work, most of the jobs are such low wages that they can barely support themselves, let alone repay their student loans. The sad part is, a lot of college admissions advisors are encouraging kids to take all the loans they can get so they don’t have to have such a heavy schedule/load to carry and can spend more time on college studies.