WASHINGTON (1/28/13)--Legislation that would treat privately issued student loans in bankruptcy the same as other types of private debt was introduced by a group of senators last week.
The bankruptcy bill, known as the "Fairness for Struggling Students Act of 2013" (S. 114), is sponsored by Sen. Richard Durbin (D-Ill.) and is cosponsored by Sens. Sheldon Whitehouse (D-R.I.), Jack Reed (D-R.l.), Tom Harkin (D-Iowa), Elizabeth Warren (D-Mass.) and Al Franken (D-Minn.). Durbin in a release said the bill would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005 so that privately issued student loans will once again be dischargeable in bankruptcy like nearly all other forms of private debt.
Government issued or guaranteed student loans have been treated as nondischargeable debt during bankruptcy proceedings since 1978. Legislation that extended these same protections to private student loans was approved in 2005.
A second bill, the "Know Before You Owe Act of 2013" (S. 113), would require schools to counsel students before they take out private student loans and to inform students of any unused federal student aid eligibility. Schools would also need to confirm a student's enrollment status, cost of attendance and estimated federal financial aid assistance before their private student loan can be approved. S. 113 is cosponsored by Durbin, Harkin and Franken.
The Consumer Financial Protection Bureau has noted that student loan debt, which surpassed $1 trillion in 2012, has exceeded credit card debt as the largest source of consumer debt in the U.S. More than $150 billion of this $1 trillion total is comprised of private student loans, and at least $8 billion of these private student loans are in default, the CFPB said.
CUNA estimates that around 300 credit unions currently offer student loans to their members. Credit unions also provide financial education and seminars relating to student lending generally, and encourage students to attend. The CUStudentLoans.org website also provides extensive financial education regarding student lending, through both written information and webinars. The site is powered by Fynanz, a CUNA Strategic Services provider.