Congressman Cohen Chairs Hearing on Student Loans and Bankruptcy
September 23, 2009
Immediately following the hearing, Congressman Cohen announced he will soon file legislation soon to give private student loan borrowers more equitable treatment during the bankruptcy process.
“Access to education has been one of the defining issues of my legislative career of more than three decades. As a State Senator, I fought for the creation of the Tennessee Lottery Scholarship Program because I know that college graduates who have less debt when they enter the workforce are more likely to succeed. Since its inception in 2004, the Tennessee Education Lottery has raised more than $1.5 billion to fund HOPE scholarships,” Congressman Cohen said.
“Access to education has been one of the defining issues of my legislative career of more than three decades. As a State Senator, I fought for the creation of the Tennessee Lottery Scholarship Program because I know that college graduates who have less debt when they enter the workforce are more likely to succeed. Since its inception in 2004, the Tennessee Education Lottery has raised more than $1.5 billion to fund HOPE scholarships,” Congressman Cohen said.
“I view with concern the great increase in the number of private student loans issued over the last decade, especially to students of modest means. Unlike federal student loans, private loans lack important consumer protections, leaving financially distressed borrowers with little option but to seek bankruptcy relief,” Congressman Cohen said. “That’s not right and certainly not fair to those who have worked so hard to realize their dream of a college education. I am working right now on legislation to remedy this problem and give private student loan borrowers more equitable treatment during the bankruptcy process.”
This afternoon the CAL Subcommittee held a hearing entitled, “An Undue Hardship? Discharging Education Debt in Bankruptcy.” Congress has not held a hearing on the student loan dischargability provision of the Bankruptcy Code since is was first enacted in 1976 as part of the Higher Education Act.
Since the Higher Education Act was extended in 2005, it has been nearly impossible to discharge private student loans through bankruptcy. These expensive, variable-rate loans lack the consumer protections and flexible repayment options of federal loans, leaving borrowers with almost no options for relief when they face catastrophic medical expenses, suffer prolonged unemployment, or otherwise fall on hard times. Too often, young people take out thousands of dollars in risky private loans after receiving inadequate or misleading information from lenders or colleges.
Unlike other kinds of unsecured debt, the Bankruptcy Code conditions the discharge of student loan debt on a debtor’s showing that he or she will suffer an “undue hardship” if forced to repay the debt. Congress’s rationale for giving student loan creditors favorable treatment in bankruptcy was to protect the viability of the federal student loan program and, more generally, public monies.
For example, lenders often do not disclose the actual interest rate on a private student loan until after the borrower has applied and been approved for the loan. Private student loan borrowers often find themselves trapped under the weight of tens of thousands of dollars in expensive, high-interest, high-fee student loan debt with no guaranteed opportunity for income-based repayment, deferment, or forbearance.
Colleges may recommend private loans before students and parents have taken out all they can in safer, cheaper federal loans, and fail to clarify the significant differences between these financing options. One type of private student loan bypasses colleges entirely, so the college may not know when a student seeks or gets an unnecessary private loan. And most private loans require payment in full even if the borrower dies or becomes severely disabled. Recent studies suggest that the “access” that private student loans may provide often bring costs that outweigh their benefits.
HEARING FOLLOWS LAST WEEK’S PASSAGE OF STUDENT AID BILL IN HOUSE
Today’s hearing on student loan debt follows the passage of legislation aimed at ensuring that young people join the workforce without the burden of overwhelming student loan debt. Last week, Congressman Cohen voted in support of H.R. 3221, The Student Aid and Fiscal Responsibility Act (SAFRA), which will help to make college more affordable by increasing funding for Pell Grants and keeping the interest rate on direct-subsidized student loans low.
The bill will also help to keep the doors of opportunity open at historically black colleges and universities, like LeMoyne-Owen, by providing greater federal aid to help students and to invest in new buildings and facilities. The bill will also invest in our elementary, middle, and high schools, and community colleges, like Southwest, so that they can make improvements to classrooms and provide a 21st Century education.
The bill also makes the process of filling-out the FAFSA form, which is how students apply for financial aid, including Tennessee Lottery Scholarships, easier to complete and submit.
SAFRA also offers a second chance to those students who have minor drug convictions so that they can continue to receive loans and scholarships and complete their college education
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Steven Broderick
Communications Director
Congressman Steve Cohen (TN-9)
1005 Longworth House Office Building
Washington, DC 20515
Direct: 202-226-7916
Main: 202-225-3265
steven.broderick@mail.house.gov
Issues:Education