On Wednesday, Democrats once again unveiled legislation aimed at providing relief to student loan borrowers. Sen. Tom Harkin (D-IA) introduced the Higher Education Affordability Act, which, among other things, would allow students to be able to file bankruptcy on private student loans. This is another bill in a long list of attempts by Democrats to provide options for students and former students to get out from underneath some of the $1.2 trillion worth of student loan debt in America.
Currently, private student loans are not dischargeable in bankruptcy, just like federal student loans. Stemming from Republican backed legislation in 2005, the Bankruptcy Abuse and Consumer Protection Act, private lenders like Sallie Mae, Wells Fargo, and American Education Services have provided 15 percent of student loans in America.
“The upcoming reauthorization of the Higher Education Act, which the HELP Committee has been focused on for nearly a year, presents an historic opportunity for Congress to focus attention on college affordability and accountability, help borrowers with existing student debt, and increase transparency so students and families can make informed decisions,” read a statement from Sen. Harkin. “This proposal is based on recommendations the committee has received through its series of bipartisan hearings.”
Earlier this month, a bill from Sen. Elizabeth Warren (D-MA) aiming to lower the interest rates on federal student loans was filibustered by Republicans in the Senate. In the House of Representatives, similar bills to make private loans dischargeable through bankruptcy have been introduced, like H.B. 3892, or the Student Loan Borrowers’ Bill of Rights Act of 2013.
Republicans have held up any legislation concerning private lenders, citing the need for more counseling on financial responsibility.
Douglas Triggs, an attorney in Boulder, Colorado, who works with student loans stated that the 2005 legislation providing bankruptcy protection for lenders was founded on false assumptions. Lobbyists, including Sallie Mae, argued that many students would take out loans and simply file bankruptcy after college. This notion has been refuted by consumer advocates like Stephen Burd, a senior research fellow at the New America Foundation.
Douglas Triggs agreed and said, “Students are only thinking two weeks ahead instead of five years ahead.” Triggs argued that the idea of filing bankruptcy isn’t as easy as some private lender advocates suggest.
According to Triggs, students would be “ecstatic” if given the opportunity to file bankruptcy on student debt. “They’d be out from under debt, get a fresh start, and wouldn’t be chained to student debt.”
President Barack Obama, who won both elections with large support from young college students, has recently vamped up efforts to find a solution to the ballooning student loan problem. The president threw his support behind Sen. Warren’s bill earlier in the month, and he has also addressed the issue on his weekly addresses to the nation.
With Republicans once again balking at legislation to provide relief, this topic could continue to be a partisan divide. Some Republicans have accused the Democrats of using student debt as a wedge issue in the upcoming midterms. With the majority in the Senate up for grabs, Democrats need younger voters to turn out. While younger voters generally tend to vote Democratic, turnout during midterm elections lags behind presidential election years.
Bankruptcy could force private lenders to change the ways that they lend money to students. Relying on co-signers due to poor or no credit, students face high interest rates, inflexible repayment plans, and high default rates on private loans, which not only handcuff the borrower, but often the parents of the borrower as well. Many parents are forced to cash in their 401k or take out a second mortgage on homes in order to get rid of debt.
If anyone would like to provide feedback, Sen. Harkin’s office provided the email address HEAA2014@help.senate.gov, for those interested.