Statements on Introduced Bills and Joint Resolutions

BREAK IN TRANSCRIPT

Mr. DURBIN. Mr. President, over the past year, students in Illinois have told me their stories of leaving some for-profit colleges with mountains of student loan debt and no job prospects. The students who find themselves in this terrible situation often end up defaulting on their loans. One quarter of students who took out Federal loans to attend for-profit colleges defaulted within three years of starting repayment. Compare that to 11 percent at public colleges and 8 percent at private nonprofit colleges.

The situation for students who take out private student loans to attend for-profit schools can be even worse. A study by the College Board found that students at for-profit schools, unable to get enough government aid to pay their tuition turn to private loans much more than students at traditional schools.

Many large for-profit colleges have begun making loans directly to their students. This private lending can be a boon for the schools. It keeps students in school. It helps the college meet its ``90/10'' requirement, which keeps the student aid flowing.

Disturbingly, some of the for-profit colleges making these loans do not expect to collect them easily. Corinthian Colleges Executive Vice President and Chief Financial Officer Ken Ord stated in the February 2010 investor call that they anticipate a 56 percent to 58 percent default rate on an estimated $150 million in internal student lending. Just last month, Ken Ord stated that Corinthian Colleges will seek to nearly double this loan volume.

For-profit colleges like Corinthian are making private loans to students knowing that a majority of the students will struggle to make payments. These companies make significant profits from federal financial aid programs and are able to write off these loans.

This is a disaster for students. These are private student loans with interest rates and fees that can be as onerous as credit cards. There are reports of private loans with variable interest rates reaching 18 percent. Unlike Federal student loans, there are few consumer protections available for private student loans. Some students who take out private loans find themselves trapped under an enormous amount of debt that they cannot escape. Because of a 2005 change to the bankruptcy law, they are stuck with this debt for the rest of their lives.

Today, along with Senator FRANKEN and Senator WHITEHOUSE, I am introducing a bill that will restore fairness for these students and others who find themselves buried in private student loan debt. Our bill, the Fairness for Struggling Students Act, will allow borrowers of private student loans to discharge those loans in bankruptcy, just as other types of private debt can be discharged. Representatives COHEN and DAVIS are introducing a similar bill in the House.

Before 2005, private student loans issued by for-profit lenders were appropriately treated like credit card debt and other similar types of unsecured consumer debt in bankruptcy. In 2005, a provision was added to law to protect the investments of private lenders that extend private credit to students. The industry has boomed over the past decade. Private student loan volume last year was $8.5 billion.

Today, I am pleased to introduce a bill that will give students who find themselves in dire financial straits a chance at a new beginning. My bill restores the bankruptcy law, as it pertains to private student loans, to the statute in place before the law was amended in 2005. Under this legislation, privately issued student loans will once again be dischargeable in bankruptcy.

The bankruptcy law was designed to give debtors in severe financial distress a chance for meaningful relief. The current bankruptcy law unjustly punishes men and women who have tried to improve their lives by pursuing a higher education and all too often became victims of predatory private student lenders or predatory for-profit colleges. It is time to restore fairness for student borrowers. I urge my colleagues to support this bill.

BREAK IN TRANSCRIPT

Source