Subscribe

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. 

  • close
    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.
    Jonathan Ernst/Reuters/File
    View Caption
  • About video ads
    View Caption
of

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.

Recommended: Student loans: Top 10 states with the highest debt levels

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+.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK