The Republican Congress' ongoing effort to overhaul the Dodd-Frank Wall Street Reform and Consumer Protection Act, as embodied in the Economic Growth, Regulatory Relief and Consumer Protection Act, may yet extend a helping hand to struggling student loan borrowers. On March 8, Sen. Richard ("Dick") Durbin (D-Ill.), the Democratic Minority Whip, introduced an amendment to this act specifically directed at aiding individuals encumbered by private student loans, or PSLs. As it now stands, the measure boasts support from several of Durbin's Democratic colleagues, including Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Patty Murray (D-Wash.), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Tammy Baldwin (D-Wis.), Tammy Duckworth (D-Ill.), Sheldon Whitehouse (D-R.I.), Maggie Hassan (D-N.H.), and Chris Van Hollen (D-Md.).
Expansively written and broadly reaching, Durbin's bill adds numerous consumer protections for PSL borrowers. It includes a Student Loan Borrower Bill of Rights, which establishes disclosure requirements and protections for borrowers when a student loan is sold, transferred, or reassigned, and requires servicers to respond in a timely manner to inquiries and provide online access to information related to the borrowers' loans. It eliminates wage garnishment for borrowers making less than 185% of the federal poverty level and limits garnishment on private and federal student loans to 10% of discretionary income for those who make more than 185% of the federal poverty level. It compels lenders to disclose benefits that may be forfeited upon refinancing of a federal student loan into a private loan and bars them from denying credit to individuals who qualify for protections under the Servicemember Civil Relief Act. Echoing provisions already approved by the Senate's Banking, Housing, and Urban Affairs Committee, the bill further ensures that private education loans are dismissed upon a borrower's death or disability and bars acceleration in certain defined cases. Lastly, it codifies the Know Before You Owe Private Student Loan Act, which requires that borrowers be notified of any remaining federal financial aid before taking on necessary private student loan debt.
The bill further modifies the treatment of student loans under the United States Bankruptcy Code. In particular, it creates a rebuttable presumption that certain debtors—those receiving Social Security disability benefits or acting as caregivers for veterans or elderly or chronically ill family members, or those making less than 200 percent of the poverty guidelines—face an "undue hardship" sufficient to render their debts eligible for discharge (i.e., elimination or nullification) through bankruptcy. The new amendment further restores dischargeability of private student loans that Congress effectively barred even for borrowers who face extreme financial problems via the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
In defending his amendment, Durbin stated, "If we can take up the issue to make it easier for banks in America, we can spare a few minutes to debate whether or not we can make it easier for student borrowers to survive when the student debts that they face are stopping them from moving forward in their lives – massive debt that stops them from getting married, buying a home, a car, starting a family, that's the reality for many families across America." Bankruptcy judges already wield the power to cancel loans borrowed for homes, boats and other property, Durbin maintained, but their power unnecessarily stops at student loans. Supporting his colleague, Sen. Reed contended, "Strengthening student loan servicing and protections for private student loan borrowers, including in the growing refinancing market, and providing greater transparency and accountability for campus-based banking products beyond just credit cards are important steps that will ensure that the many abuses that have taken place against student loan borrowers won't happen again." Within hours, the amendment received strong support from the National Consumer Law Center, Center for Responsible Lending, National Association of College Admissions Counseling, American Federation of Teachers, National Education Association, and Young Invincibles.
A full summary of Durbin's student loan amendment and videos of his remarks on the Senate floor can be found here.
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