Congressman Steve Cohen

Representing the 9th District of Tennessee

Reps. Cohen, Davis and Swalwell Introduce Legislation to Restore Fairness in Student Lending

May 18, 2017
Press Release

[WASHINGTON, D.C.] — Congressmen Steve Cohen (TN-09), Danny Davis (IL-07) and Eric Swalwell (CA-15) today introduced the Private Student Loan Bankruptcy Fairness Act. This legislation would restore fairness in student lending by treating privately issued student loans the same as other types of private debt in bankruptcy. Until 2005, this type of student loan debt was dischargeable in bankruptcy, but a change to the bankruptcy code made that year removed this consumer protection.

“With student loan debt outpacing both auto loans and credit card debt as the largest form of non-mortgage consumer debt, Congress must take action to help reduce this burden on the American people,” said Congressman Cohen.  “People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin.  The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected. Our bill will help achieve that goal, and I hope Congress considers it quickly.”

“The 2005 bankruptcy restrictions penalize borrowers for pursuing higher education, provide no incentive to private lenders to lend responsibly, and likely affect African American borrowers more negatively than other borrowers,” said Congressman Davis.  “I am proud to join with my colleagues to ensure that our statutes do not unintentionally burden particular groups of people.  Private education debt is no different than other consumer debt; it involves private profit and deserves no privileged treatment.  I will work actively with Senator Durbin and Congressman Cohen to protect student borrowers.”

“Student loan debt is putting the American Dream of starting a family, buying a home, and starting your own business out of reach. 40 million young people have found themselves in $1.3 trillion of quicksand,” said Congressman Swalwell. “This legislation is a commonsense fix that will lift a weight off student loan borrowers should they face tough financial times, and will encourage more Americans to pursue their dreams of a college education.”

Before changes were made to the Bankruptcy Code in 2005, only government issued or guaranteed student loans were protected from discharge during bankruptcy. This protection has been in place since 1978 and was intended to safeguard federal investments in higher education.  Today’s 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.

Private student loans have much in common with credit cards and subprime mortgages.  For example, private student loans often have onerous interest rates with no caps and can include exorbitant fees and hidden charges.  In addition, many lenders have used aggressive marketing and high-pressure sales tactics to target particularly vulnerable people, namely, young men and women without financial experience, and older Americans seeking to re-start their careers by pursuing higher education and training.

Private student loans lack the critical consumer protections that come with federal student loans. For instance, private lenders are not required to – and typically do not – provide any of the deferments, income-based repayment plans, cancellation rights, or loan forgiveness programs that are available to federal student loan borrowers.