Introduction Of The "Private Student Loan Bankruptcy Fairness Act Of 2010''

Floor Speech

* Madam Speaker, I am pleased to join my distinguished colleague, Representative DANNY DAVIS of Illinois, in introducing today the ``Private Student Loan Bankruptcy Fairness Act of 2010.'' This legislation would amend the Bankruptcy Code so that private student loan debt can be discharged in bankruptcy. This bill will help to ensure that people who seek higher education to better their futures are not dissuaded from doing so by the threat of financial ruin.

* Under current bankruptcy law, educational debt is not dischargeable in bankruptcy unless the debtor can establish--through an adversary proceeding--that repaying her educational loans would impose an undue hardship on her and her dependents. Congress's intent in enacting this provision back in 1978 was to protect Federal student loan programs from fraud and abuse by student borrowers and ultimately to protect the taxpayer dollars that fund Federal student loan programs.

* Inexplicably, this provision was extended in 2005 to protect for-profit educational lenders, even though doing so was not consistent with Congress's rationale for making Federal student loans non-dischargeable. This 2005 change is troublesome because private student loans often lack the consumer protections of Federal loans, making the need for bankruptcy much greater.

* Federal student loans offer certain protections to minimize the risk that a financially distressed debtor will need bankruptcy relief, whereas private student loans are not required to have, and often do not have, such consumer protections. For example, Federal loans have fixed interest rates, whereas private loans often have variable rates that can be as high as 19 percent. Unlike Federal loans, private loans have no limits on origination fees, which can be as high as 9.9 percent, with lenders often charging additional fees such as late fees or fees for any deferments or forbearance, and half of the private loans in one survey had no forbearance option at all. Federal loans also provide flexible options for distressed debtors, such as income-based repayment plans and partial or complete loan forgiveness in some circumstances, whereas private lenders are not required to offer such options. For these reasons, private loans should be dischargeable in bankruptcy.

* 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 legislation takes a modest but important step in achieving this goal.

* I thank Representative DAVIS for working with me in crafting this important legislation. I also thank Senator RICHARD DURBIN for introducing a similar bill in the Senate. I urge Congress to act quickly and pass these bills.

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