One West Side congressman has proposed legislation to further strengthen this year's college student loan overhaul and would allow for private student loans to be discharged in bankruptcy.
U.S. Rep. Danny K. Davis, D-7th, U.S. Sen. Dick Durbin, D-Ill., U.S. Rep. Steve Cohen, D-Tenn., and U.S. Sen. Al Franken, D-Minn, are the sponsors of the Private Student Loan Bankruptcy Fairness Act of 2010.
“Why should student loans be treated differently? Private education debt is no different than other consumer debt; it involves private profit and deserves no privileged treatment,” Davis said. “Medical students often take out private loans and the amount can be overwhelming and sometimes impossible to ever repay.”
He added that before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy.
This protection has been in place since 1978 and was intended to safeguard federal investments in higher education.
But Davis' proposed bill would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy.
Durbin, who first introduced this legislation in June 2007, said private loans usually carry higher interest rates than government issued student loans and often reap huge profits for lenders, such as banks.
“(This) bill takes an additional step toward restoring fairness in student lending by placing student loan companies in the same position as virtually all other private lenders,” said Durbin.
And because Blacks are disproportionably lower income they tend to borrower more from private lenders, Davis told the Defender.
According to Durbin, Congress ended a $6 billion subsidy to private student loan lenders two weeks ago, which now allows college students to borrow directly from the federal government.
Davis said private student loans should be interest free to borrowers since lenders receive interest free loans.
“The prospect of being thousands of dollars in debt upon graduation is scaring off potential future leaders from going to college. No one should have to graduate from college and owe $40,000 in loans with just a bachelor's degree in tow,” he said.
“Education is vitally important to the growth of this country so it is vitally important that the federal government do every thing it can to help students attend college.”
President Barack Obama signed into law last month the Health Care and Education Reconciliation Act of 2010, which addresses the future of student loans.
Under the new legislation, which will take effect July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the U.S. Department of Education.
And as part of the expanded income-based repayment plan, new borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, would have the balance forgiven after 20 years.
Public service workers such as teachers, nurses, and those in military service will see any remaining debt forgiven after just 10 years.
Copyright 2010 Chicago Defender.
