[Congressional Record Volume 153, Number 91 (Thursday, June 7, 2007)]
[Senate]
[Pages S7335-S7337]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DURBIN:
  S. 1561. A bill to amend title 11, United States Code, with respect 
to exceptions to discharge in bankruptcy for certain qualified 
educational loans; to the Committee on the Judiciary.
  Mr. DURBIN. Mr. President, I would like to tell you about Connie 
Martin from Sycamore, IL. Connie's son decided to go to culinary school 
in Chicago 5 years ago at the age of 25. To pay for tuition, he 
borrowed $58,000 in private loans from Sallie Mae at 18 percent 
interest. His first payment was $1,100 a month--his entire monthly 
salary at a downtown eatery where he worked after graduation. His loan 
balance, including government-backed loans, is now $100,000. Connie's 
son has been working hard, and she and her husband have been trying to 
help him make the payments. I worry for borrowers like Connie's son who 
can't start over and will have debt that will likely haunt him for the 
rest of his life.
  The Chicago Sun-Times recently ran a story that described the 
devastating effect large student loan debt has on the lives of 
borrowers. Mr. President, I ask unanimous consent that the following 
article from the Chicago Sun-Times be inserted for the Record.
  Private student loans are the fastest growing and most profitable 
sector of the student loan industry. As college tuition continues to 
rise, the private loan market flourishes. According to the College 
Board, tuition, fees, room and board at public 4-year schools have 
risen by 42 percent over the past 5 years from $9,032 to $12,796. Add 
books, supplies, transportation and other living expenses, and the 
total increases to $16,357 for those paying instate tuition and $26,304 
for those paying out-of-state tuition. Students rely on private loans 
to pay for any unmet need that Federal loans and grants fail to cover. 
According to the College Board, since 2001 the market for private 
student loans has grown at an annual rate of 27 percent to $17.3 
billion in 2006--roughly 20 percent of total student borrowing. Ten 
years ago, only 5 percent of total education loan volume was in private 
loans.
  Private student loans are more profitable than Federal student loans 
because lenders can charge whatever interest rate students will pay, 
barring State usury laws. The interest rates and fees on private loans 
can be as onerous as credit cards. There are reports of private loans 
with interest rates of at least 15 percent and often much higher. 
Unlike Federal student loans, there is no government-imposed loan limit 
on private loans and no regulation over the terms and cost of these 
loans.
  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 takes the bankruptcy law, as it pertains to private student 
loans, back to where it was before the law was amended in 2005. Under 
this legislation, privately issued student loans will once again be 
dischargeable in bankruptcy. My bill also clarifies that existing 
protections are specific to loans that were issued by or are guaranteed 
by State and Federal Government.
  Federally issued or guaranteed student loans have been protected 
during personal bankruptcy since 1978. This provision protects Federal 
investments in higher education. In 2005, a provision was added to law 
to protect the investments of private lenders participating in the 
student loan industry. This change in the law creates a couple of 
problems. First, extending protections to private lenders of student 
loans but not to other potential creditors who are at risk in a 
bankruptcy disposition is inherently unfair. Second, such protections 
are unfair to the debtor. Repayment schedules--with accumulating 
interest--can extend for decades.
  With the 2005 protections in place, there is essentially no risk to 
lenders making high-cost private loans to people who may not be able to 
afford them. There is no risk to private lenders extending credit to 
students at schools with low graduation rates and even lower job 
placement rates.
  Giving private loans such high status in bankruptcy also puts other 
creditors at a significant disadvantage. No one seems to know how or 
why private student loans gained this status in 2005. There is nothing 
in the Congressional Record explaining the reasons behind the change. 
Why should a private student loan lender be able to jump to the front 
of the creditor line--in front of the local furniture store or the 
neighborhood plumber? This bill seeks to restore treatment of privately 
issued student loans in bankruptcy to the same treatment as any other 
debt.
  There is justification for making Federal loans hard to discharge: 
they are backed by taxpayer dollars, and they come with some borrower 
protections in cases of economic hardship, unemployment, death and 
disability. However, private loans involve only private profit and do 
not have the protections that government borrowers enjoy, including 
caps on interest rates, flexible repayment options, and limited

[[Page S7336]]

cancellation rights. Why should student borrowers, who are trying to 
better themselves and our country, be treated in the same manner as 
people trying to escape child support payments, alimony, overdue taxes, 
and criminal fines?
  The 1950s and 1960s saw the democratization of higher education. The 
GI Bill provided money for returning WWII veterans to attend college. 
The National Defense Education Act made college a possibility by making 
low-interest education loans available for countless students all 
across the country. Talented kids from working families began realizing 
the possibility of college, and enrollment at colleges swelled. But 
since then, college costs have gone through the roof. And students--
heeding the call to obtain a good education--are also earning 
themselves years of debt. The average student is graduating with nearly 
$20,000 in debt and in many cases--much, much more--just look at Connie 
Martin's son. Our country has made great strides in making college a 
reality for countless students. Let's not reverse the positive trend we 
started over 50 years ago. That is why I am introducing this bill--to 
give students a chance at a fresh start.
  Mr. President, I ask unanimous consent that the text of the bill and 
an article of support be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1561

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. DISCHARGE IN BANKRUPTCY FOR CERTAIN EDUCATIONAL 
                   LOANS.

       Section 523(a)(8) of title 11, United States Code, is 
     amended by striking ``dependents, for'' and all that follows 
     through subparagraph (B) and inserting ``dependents, for an 
     educational benefit overpayment or loan made, insured, or 
     guaranteed by a governmental unit, or an obligation to repay 
     funds received from a governmental unit as an educational 
     benefit, scholarship, or stipend.''.
                                  ____


                   [From the Sun Times, May 6, 2007]

               Students and Loans: 'Til Death Do Us Part

                           (By Dave Newbart)

       They liken it to a financial death sentence.
       They can't get a car loan, a home mortgage or any other 
     type of loan. They've lost jobs and even spouses over it.
       They are so humiliated they don't want any of their friends 
     or family to know.
       And for most, there is no way out.
       They are former students trapped under the weight of 
     student loans. The same vehicle that allowed them to get a 
     college education has left many graduates buried in debt with 
     no reasonable way to climb out.
       Some students who never graduate are stuck paying off loans 
     without the earning power of a degree--an estimated 
     additional $1 million in lifetime earnings.
       And some students who finish can't afford the monthly 
     payments. Others lose jobs and can't catch back up. Then they 
     get turned down by employers who increasingly check credit 
     records before hiring.
       Some say they would make small monthly payments to show 
     good faith--only to see their balances continue to grow and 
     to receive harassing phone calls from collectors.
       To be sure, most borrowers pay on time; default rates are 
     at an all-time low.
       But for those who run into trouble, changes in federal 
     laws--including many in the last decade--have made student 
     loans among the hardest debts to discharge. They've also made 
     the loans among the most lucrative for private lenders, who 
     face little risk--because the government backs the loans--but 
     reap the benefits when balances balloon.
       Some borrowers say they accept reasonable interest, but 
     they believe the fees and penalties--which over time can 
     double or triple the loan balances--are unfair.


                     Interest rate over 18 percent

       Many of the students awash in debt say that they were 
     blinded by the promise a college degree holds and unprepared 
     to take on high levels of debt at such a young age.
       Connie Martin's son signed up for cooking school in Chicago 
     in 2002 at age 25. To pay for it, he borrowed $73,000, mostly 
     in private loans from Sallie Mae, the largest student lender, 
     at 18 percent interest.
       ``He didn't know what the interest rate was. . . . He just 
     wanted to go to school,'' said Martin, of Sycamore.
       His first payment was $1,100 a month, his entire monthly 
     salary at a downtown eatery where he went to work after 
     graduation.
       ``I don't understand how they can lend a kid that kind of 
     money with no credit history, who never owned anything, with 
     no co-signers,'' said his mother, who only learned of the 
     situation after the bills started to pile up.
       Sallie Mae officials said they no longer offer such high-
     interest loans, and have offered students a chance to 
     refinance at a lower rate if certain conditions are met. ``We 
     recognize it's high,'' spokeswoman Martha Holler said.
       Martin's son declined to comment. His balance has since 
     grown to $98,000.


                     It's like indentured servitude

       Greg Treece, of Downstate Mattoon, now wishes he never 
     enrolled in Washington University's Occupational Therapy 
     program. ``Choosing an expensive private school and borrowing 
     the money to go there is the single greatest mistake I have 
     ever made,'' he said.
       Treece took out $84,000 in loans. Six months after he got 
     out of the St. Louis school, his monthly payment was more 
     than half his take-home pay for his first job in Chicago. He 
     later lost his job. With compounding interest, his loan 
     quickly skyrocketed. At times he seriously wished he could go 
     to jail in exchange for wiping out the debt.
       With a new job, he's managed to pay $60,000, but his 
     balance remains at $111,000 because of fees, penalties and 
     interest. ``It's like indentured servitude,'' he said.
       For those who default, lenders can truly play hardball, 
     often employing no-scruples private collection firms that 
     call borrowers as often as 10 times a day.
       Shirley, an Ivy League-educated lawyer, lost her job in 
     Chicago in the late 1980s. She pleaded for reduced payments 
     from a collector working for the Illinois Student Assistance 
     Commission--but was denied.
       ``I said you are driving me to bankruptcy,'' she recalled. 
     ``They wouldn't budge.''
       In bankruptcy court ISAC claimed she owed $78,000, which 
     included $13,000 for collection costs, 20 percent of the 
     total debt. Nearly all of the debt was eventually erased, 
     according to court records.
       Because that was before the recent law changes, she should 
     have been clear.


                     Loan chief admits ``mistakes''

       But several years later, the collectors began calling 
     again--first from ISAC and then from the U.S. Education 
     Department. They claimed the bill was now over $100,000.
       ``It was as though they were above the law,'' she said. She 
     eventually went to court again and proved she no longer owed 
     the money, but her husband left her in the process. She asked 
     that her real name not be used out of fear of retaliation.
       ISAC and the Education Department say they have several 
     programs that allow students to delay payments in hard times 
     or make lower ones based on income. Officials say they try to 
     help borrowers in default get back into good standing, a 
     process known as rehabilitation. Last year, ISAC rehabbed $30 
     million in defaulted loans, up from $4.4 million in 2002.
       Agency director Andy Davis says the agency has to strike a 
     balance between helping borrowers repay and making sure 
     taxpayers aren't left in the lurch.
       But he acknowledges his workers ``make mistakes'' and said 
     he is looking to make changes in some of the outsourcing of 
     collections.
       Then there are those with hard luck, who make bad decisions 
     or just simply can't get a break.
       Richard and Sheila Friese both have degrees from Southern 
     Illinois University, financed in part on student loans. They 
     were also both discharged from the Navy after suffering 
     injuries while serving stateside. Richard is learning 
     disabled.
       They have never been able to find high-paying jobs; now 
     they both use wheelchairs to get around and suffer from 
     ailments including arthritis, constant abdominal pain and 
     chronic fatigue. They're currently fighting with the Veterans 
     Administration over benefits; they also are wrangling with 
     the Social Security Administration.


                  Collector: ``We will never go away''

       They currently have no income to pay off their combined 
     $141,000 loan balance. ISAC has seized $3,200 in tax refunds 
     from Sheila, 37. Richard, 49, avoids the phone after 
     constantly being called by collectors for Sallie Mae--one of 
     whom he claims called him a ``low-life, S.O.B.'' Holler said 
     Sallie Mae's collectors are trained in fair debt collection 
     practices. ``That should not happen,'' she said.
       If this were virtually any other debt, experts say, the 
     couple would be able to discharge some or all of it through 
     bankruptcy. But the Frieses, of Mundelein, are stuck. ``Our 
     life has hit a brick wall,'' Richard said.
       Davis said it might make sense for the federal government 
     to ``write off'' debt if borrowers--particularly vets--have 
     no hope of paying.
       Pam, 58, of Dolton, graduated from Downstate SIU-
     Edwardsville in 1984, but spent time on welfare. She 
     eventually defaulted on her loan after a dispute over the 
     amount of the balance and monthly payments. Her $12,500 in 
     loans has grown to $28,000. Experts say borrowers should 
     continue to make payments during a dispute so the loan 
     doesn't get out of control.
       She has gone underground, blocking collectors' calls and 
     running her own business so her wages can't be garnisheed. 
     But when collectors do get through, they have a harsh 
     message. ``When they call they say, `We will never go away 
     until you are dead.'''


                            UP, UP AND AWAY

       Percent of students with loans
       1993: less than 50 percent
       2004: 66 percent
       Average debt for graduating seniors
       1993: $9,250
       2004: $19,200
       Number of graduating seniors with debt over $40,000
       1993: 7,000

[[Page S7337]]

       2004: 78,000
                                 ______