Empowering Students Through Enhanced Financial Counseling Act

Floor Speech

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Mr. COHEN. Madam Chair, this amendment is very simple. It would add an explanation of how Federal and private student loans are treated in bankruptcy to the list of the disclosures contained in the underlying bill.

Unfortunately, too many students lack basic financial literacy, and if they don't have a proper understanding of their rights and responsibilities when it comes to student loans, it can lead to serious consequences for their financial future.

That is why I am pleased to support this legislation that Mr. Kline has offered--he has done such a good job bringing a bipartisan bill here--and the important financial counseling it requires.

However, one area that is not included is an explanation of the stringent requirements we have placed when it comes to erasing your student loans in bankruptcy.

While bankruptcy is never something to be taken lightly, our system does allow an honest but unfortunate debtor the opportunity for a fresh start if their financial situation is desperate enough. Most people assume that their student loans can be discharged along with their other consumer debts during bankruptcy proceedings, but that is not the case.

Under current law, borrowers must show that continuing to back their loans would impose an ``undue hardship'' on them and their dependents, a standard that, in practice, is nearly insurmountable. Bankruptcy law exempts very few types of debt from elimination through the bankruptcy process, but there are certain exceptions. For example, for principled policy reasons, we exempt child support, taxes, criminal fines, and intentional torts. In 1978, Congress added Federal student loans to this list.

This protects Federal student loan programs--and the taxpayer dollars that fund them--from fraud and abuse by borrowers. This also makes sense because Federal loans offer certain protections to ease the burden on debtors, like fixed interest rates and opportunities for deferments, income-based repayments and forbearance; but in 2005, the Bankruptcy Protection Act was passed, and the bankruptcy protection was extended to private loans, which are not required to have and often do not have such consumer protections. In fact, private lenders often market directly to students, luring them into unaffordable loans that saddle them with debts for decades to come.

That is why I have introduced legislation to remove the exemption for private student loans and why the Consumer Financial Protection Bureau has called for a study on whether bankruptcy rules for student loans should be modified. That, however, is not the issue here. The fact remains that this is the law, and students should be aware that their loans, both Federal and private, can only be discharged in bankruptcy in exceptional circumstances. That is why I propose this small refinement to the underlying legislation--to ensure that borrowers understand the hurdles they may face in wiping the slate clean.

I thank Mr. Kline for allowing this and the Rules Committee for allowing this amendment to be made in order, and I urge my colleagues to support it.

I reserve the balance of my time.

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