WASHINGTON – Congressmen Steve Cohen (TN-09), Danny K. Davis (IL-07) and Eric Swalwell (CA-15) today introduced the Private Student Loan Bankruptcy Fairness Act. This law will restore fairness to student loans by treating private student loans in the same way as other types of private bankruptcy debt. Until 2005, this type of student loan debt was subject to bankruptcy repayment, but a change in the bankruptcy code in the same year removed this consumer protection.
Congressman Cohen made the following statement:
“People seeking higher education to improve their future should not be discouraged by the threat of financial ruin. No one wants to file for bankruptcy, but the bankruptcy system should work as a safety net, allowing people to get the education they want, with the assurance that if their finances are faced with unexpected layoffs, accidents or other unforeseen events such as our ongoing pandemic , they will be protected. Our account will provide such a guarantee. “
Congressman Davis made the following statement:
“Student loan debt overwhelms millions of borrowers, especially students of color. The twin economic and health crises have only exacerbated this damage, and education borrowers deserve the same protection from bankruptcy as other consumer borrowers. The 2005 bankruptcy restrictions penalize borrowers for higher education, provide little incentive for private lenders to lend responsibly, and are likely to affect African American borrowers more negatively than other borrowers. Private education debt is no different from other consumer debt; it is related to private profit and does not deserve special treatment. I will work actively with Congressman Cohen and Senator Durbin to protect student borrowers. ”
Congressman Swolwell made the following statement:
“Too many Americans have to put off their dreams – starting a family, buying a house, starting a business – because they are stuck in student loan debt. The Private Student Loan Bankruptcy Fairness Act will enable borrowers who have gone through difficult times to start their adult lives without fear of financial ruin so that they can better fulfill their dreams. ”
Prior to the amendments to the Bankruptcy Code in 2005, only government-issued or government-guaranteed student loans were excluded from bankruptcy repayment. This protection was intended to protect federal investment in higher education. Today’s bill will reinstate the bankruptcy law on private student loans and allow them to be reversed in the event of bankruptcy.
Private student loans lack the essential consumer protection that federal student loans provide. For example, private lenders are not required to – and usually do not provide – any deferrals, income-based repayment plans, cancellation rights, or loan forgiveness programs that are available to borrowers of federal student loans.