September 19, 2008

Private student loan bankruptcy protetion removed from bill in Congress

Posted in Misc at 7:49 AM by Joe From Boston


An amendment by Rep. Davis (D -Illinois) which would have extended some bankruptcy protection to students holding private student loans has been removed from the Higher Education Act Reauthorization (HR 4137).

As you can guess, there was strong opposition from banks and financial institutions and this definitely affected the vote, I’m certain.

The bank’s argument against the bankruptcy protection amendment was that bankruptcy protection would ultimately make private student loans more expensive because lenders would have to increase interest rates and fees to cover loans that were in default and discharged in bankruptcy.

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20 Comments »

  1. C. Bissun said,

    I am a victim of Private school loan. I have started to write at length about this in a blog http://churaumanieb.blogspot.com
    Please visit link and pass on to others.
    Best wishes.
    C. Bissun

  2. Churaumanie Bissundyal said,

    Can somebody advise me. I have nearly $100,000. in federal loan debts and $64,000. in private school loan. So far I have the the federal loan derferred, but I have used up the forbearance period for the private loan. I cannot make the monthly payment of private loan since I am not earning that much. I have heard that steps are taken for the reinstitution of bankruptcy for private student loans. When will that come in place?Please advise.

  3. Kay said,

    I agree with you guys I’ am now unemployed exhausted all forbearance and hardship I’ am constantly receiving collections calls. Does anyone have any suggestions for me, also will chapter 13 help any advice will be greatly appreciated. Thanks

    • Kay,

      Chapter 13 likely will not help you with student loans, because they cannot be discharged in bankruptcy court, currently. If you have other debt, then chapter 13 may help.

      I suggest you consult a finance expert about your various options before deciding to file for bankruptcy. Good luck!

      • Ms. G said,

        Try a temp agency. A lot of businesses use them before actually hiring. They can find the pay you want and most of the jobs aren’t that stressful. Sometimes temp jops even become permanent. At least it would be some money to try and get yourself out of the hole. It’s also a job while you are looking for a job in your field.

  4. all said,

    all of the above!

  5. Jason – who is “they”? Your lender? Your congressmen?

  6. Jason said,

    moniqueleonard,
    I have called and emailed. They take your comments and say thank you for calling I’ll look into that for you. Same bs, different day

  7. Jason,
    It’s obvious you feel passionately about this. Why not contact your Congressional representatives and let them know how you feel. You may find my comment “it takes an act of congress to fix something” ironic, but it is accurate. You need to speak louder than the banking representatives. Have your family and friends call.

    Some comments – phone calls and letters are weighted heavier than emails, because it takes that much more effort. So call you congressmen and women today!

    • Jennifer said,

      Tried that, they don’t seem very promissing!

  8. Jason said,

    The private loan industry has to be the largest “undetected by main stream media” corrupt organization in this country. Our friendly government will pay illegal aliens to work and give them all kinds of benefits but honest hard working American taxpayers (with large school loans) get NO help.
    This ‘updated change’ is BS! Why does Congress repeatedly turn a blind eye to the private sector……$$$ regardless of them saying they don’t take it. Lets allow people to stay on welfare, food stamps, allow illegal’s to freely work here but again nothing for college educated persons who come into this poor economy with loans soo high that the salary will never match. And the government portrays college as “great” and ‘you will go further with an education’…well, what they don’t say is how much trouble you’re getting yourself into.
    It’s kind of ironic that the quote “it takes an act of congress to fix something”….well, not in this case!

  9. David, they may well have gotten massive donations, but I’d examine the issue a bit more clearly before labeling all bank executives liars.

    I’m not defending them, just laying out the facts.

    Remember: the average 18 year old has little to no credit, and are thus a HUGE risk in terms of lending. High interest rates are designed to partially mitigate that risk.

    The reason banks don’t want student loans dissolved in bankruptcy court is that thousands or millions of students, whose credit has already been ruined by defaulted loans, would simply file for bankruptcy and get those loans dissolved.

    That would mean that banks, already stretched tight would lose millions of dollars to students who borrow but do not pay the money back.

    Personally, I think they need a does of their own medicine – I really enjoyed watching the bank executives getting grilled last week by the House of Representatives.

  10. david said,

    “The bank’s argument against the bankruptcy protection amendment was that bankruptcy protection would ultimately make private student loans more expensive because lenders would have to increase interest rates and fees to cover loans that were in default and discharged in bankruptcy.”

    LOL and those people in Congress believe that LIE? omg gullible. Or maybe they got massive donations to believe them. lobbying ftw. esp after they helped our economy crumble Congress still is their puppet.

  11. Danielle said,

    I am about to graduate with my B.A. in May and have approximately $60K in PRIVATE student loans. Because of the unreasonable standards set by the government on income I was ineligible for much federal relief and was forced into the predatory arms of the private sector. It is ridiculous to think that the only way middle class people in this country can go to college is if they want to spend the rest of their lives suffering in enormous amounts of debt!

    I am not one of those people who purchased a house I knew I could not afford. Neither I, nor my family, are now benefiting, nor have we ever benefited from, government assistance of any kind. I have held down jobs since I was 15 years old, including both a full and part time job while in college. I have contributed for years, and will continue to contribute, to the tax base. All of this and the government is telling me they cannot help me?

    They will not help me better myself, which in turn betters the country, but they can give breaks to people who defaulted on mortgages they never should have received? They can help the very banks who offered up these mortgages that created the whole credit mess? They can do all of that, costing the tax payers (myself included) billions, but they cannot keep private student loan organizations from preying on desperate students who have no other way to go to college?

    I am not asking for a free ride, I would love to be able to pay for my loans. However, with the unreasonable interest rates applied to them I cannot. I have already received a job offer for $35K a year and medical benefits (surprising in this economy and very reasonable for someone fresh out of college) and even with that there is absolutely no way that I can pay back loans and maintain anything near a reasonable standard of living. In fact, attempting to pay them back could force me further into debt (this time with credit card companies who are just as bad). All I am asking for, for me, and for the millions of others out there, is a little help!

    Our government gives free hand outs to illegal aliens, to people who are content to stay in poverty and not better themselves, people like the unemployed and unmarried mother of octuplets (brining her total to 14 children without a father) via food stamps and medical benefits, to people who make unwise financial decisions (like buying homes they can’t afford), to the banks that caused all of the current problems (who use the money on “team building retreats”) but they cannot help their future?

    Food for thought: out of all my high school friends who even tried to go to college, but who had to pay for school with out government assistance programs (because our parents made “too much money” or because of our race. Yes I am bringing race into the equation, let’s be real, it affects federal aid!) I am the only one who will graduate. Everyone else has dropped out of college because there was no way for them to pay for it. There was no way they could be granted, or pay back, private loans. This is practically a type of class legislation! These lenders and the government, based on their laissez-faire attitude toward lender practices, are discriminating against groups of people and in turn keeping them from achieving the “American dream,” that is if it still even exists. Are we really saying (through lack of legislation and protections) that middle class people, or people with bad credit, cannot go to college?

    Again, I am not asking for a free ride, but for a reasonable one. I have no idea how I will survive if forced to pay back the entire amount of these loans (mostly due to the unreasonable interest rates). And for added insult to injury, unlike most college students, at the time of applying for some of these loans my credit score was as high as 750 and has not dipped below 700 since (I add this in response to prior posts). Yet still, sadly for me, there aren’t many options. Even though the government is aiming to make it more difficult, trying to claim bankruptcy under the “undue hardship” idea from the Brunner case (Brunner v New York State Higher Education Services Corp. for those of you not aware of it) may be my only choice. Other than that there isn’t much for the everyday middle class person to do.

    Something is wrong here and it needs to be changed! All of the Democrats are trying to say they are against lobbyist (including President Obama), that they are trying to represent the needs of their constituents rather than big business like the Republicans do. To them I say prove it! You have the power now. Turn your backs on these banks and their campaign donations, and do your job. Help me, help all the others like me, and most of all help your future. If you can’t do it for the right reasons, think about yourselves, something all you politicians do best! Think of all the voters (both now and in the future) who will be appreciative!

    • Jennifer said,

      amen to you!!! Now imagine being 262,000 in debt after only borrowing half! You can imagine what I’m going through. I don’t even see half my months pay, and I’m only doing interest only for right now!! I totally commend you and agree with everything you just said. We are being penalized for education, meanwhile people are not only buying houses, but just living in total excess buying clothes and going places they can’t afford, and it all gets discharged…where is the justice!!! Not only that, but if the day ever comes where we can discharge this in the court of law…it’s going to count against us! Now everyone is doing credit checks for employment, so now not only have they sucked all of the blood out of us, but they are making it so that we can’t even further our careers with teh debt to income ratio!!!! GO AMERICA!!!

  12. To whomever called themselves “stupid” – private loans are NOT guaranteed by the federal government, only federal loans are.

    That’s why banks charge such high interest rates on private loans – because your average 18-20 year old has little to no credit and is thus a huge risk to loan money to.

  13. stupid said,

    that’s just stupid. they already charge deadly high interest rates and they got a slap on the wrist from the attorney general, its complete bs and really is unlawful someone should fix that law. It goes since they are guaranteed now they can charge and loan out billions and at extreme rates, in turn screwing our future, our country’s economy and making a few people rich but everyone in the government knows that already and those that voted for the 2005 bill was because a lot of lobbying AKA legal bribing was done.

  14. Thanks for sharing your time and information with us! It was a brilliant reading! Thank you. Tomas

  15. Jennifer said,

    Private student loans are like any other private loan and should have standard consumer protection, including the ability to discharge in Bankruptcy.

    It was the greed of Lenders that they lobbied to have these protections removed and now when people do default they use it as a money making machine with adding on extreme collection fees making it impossible for the borrower to ever repay.

    If you do some research on this you will find its Sallie Mae’s and many other student lenders dirty little secret.

  16. The banks are full of it, I’m sorry to say. Interest rates and fees are already high because of their utterly reckless gambling in the great housing casino.


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