U.S. Sens. Al Franken (D-Minn.), Sheldon Whitehouse (D-R.I.), and Dick Durbin (D-Ill.), joined U.S. Reps. and Danny Davis (D-Ill.) and Steve Cohen (D-Tenn.) have brought forth legislation in both the Senate and the House that will reinstate fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt.
A provision to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act signed into law by then President George W. Bush, allows the discharge of private student loans in bankruptcy only after a showing of “undue hardship,” the same requirement that is made for federal or non-profit backed student loans. Proving “undue hardship” requires a separate showing to a bankruptcy judge to prove that the borrower would never be able to pay off the loan. This is often a difficult legal standard to meet. The new bill first introduced in June 2007 by Sen. Durbin, will restore the bankruptcy law to its previous language and allow private student loans to be dischargeable in bankruptcy.
“In this economy, we want to be encouraging Minnesotans to invest in their education and their future.” “That’s why it is more important than ever for people to be able to get a fresh start after financial problems related to private student loans.” Sen. Franken.
“The high interest rates on private student loans have made them incredibly profitable for loan companies and saddled students with crushing debt.” “Today’s 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.” Sen. Durbin.
Private student loans have become the fastest growing and most profitable part of the student loan industry with 15% of total student borrowing coming from private student loans. The interest rates and fees on private loans can be as high as credit cards, with interest rates of 15% or higher.
University of Phoenix graduate and single mom Valisha Cooks explained her situation to lawmakers at an April 22 hearing. Cooks claims Wachovia refuses to negotiate a more affordable repayment plan and continues adding more interest to her loan. Cook who now owes $53,000 says, “I live in constant fear that the hammer will one day drop and ruin my life and any hope for my son’s future. It’s a scary, hopeless feeling.” At McFarlin LLP we offer free consultations to prospective bankruptcy clients. Drop us a line, or give us a call today 1-888-728-0044.