Introduction of Private Student Loan Bankruptcy Fairness Act

Floor Speech

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Mr. COHEN. Madam Speaker, I rise today in support of the Private Student Loan Bankruptcy Fairness Act, a bill I introduced earlier today with my colleagues Danny Davis and Eric Swalwell. This bill would provide critical relief to Americans in severe financial distress who are struggling with overwhelming private student loan debt.

Before 2005, private student loans issued by for-profit lenders were treated in bankruptcy like most other unsecured consumer debt, such as credit card debt. Our bill will ensure that privately issued student loans will once again be treated like other consumer debt and 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.

To make matters worse, 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.

A hallmark of our nation's bankruptcy law is to give an honest but unfortunate debtor a chance to obtain meaningful relief. To that end, the law exempts very few types of debt from elimination through the bankruptcy process, and only for principled policy reasons, such as debts for child support, taxes, criminal fines and intentional injury.

In 2005, however, Congress changed the bankruptcy law without any substantive analysis so that student loans made by private, for-profit lenders became very difficult to discharge in bankruptcy.

Currently, the Bankruptcy Code prohibits the discharge of private educational debt unless the debtor, in addition to meeting the already stringent requirements for personal bankruptcy, proves that repayment would impose an, ``undue hardship,'' on the debtor and the debtor's dependents. In practice, however, it's hard for a debtor to ever successfully meet this standard.

The current bankruptcy law unjustly punishes hardworking Americans who are simply trying to improve their lives by pursuing a higher education and became victims of predatory private student loan lenders.

We can do better.

I urge my colleagues to support the Private Student Loan Bankruptcy Fairness Act and restore the fair treatment of private student loan borrowers in bankruptcy.

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