[Congressional Record Volume 158, Number 52 (Thursday, March 29, 2012)]
[Senate]
[Pages S2254-S2256]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DURBIN (for himself and Mr. Harkin):
  S. 2280. A bill to amend the Truth in Lending Act and the Higher 
Education Act of 1965 to require certain creditors to obtain 
certifications from institutions of higher education, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. DURBIN. Mr. President, last week, the Consumer Financial 
Protection Bureau reported that outstanding student loan debt in 
America has hit the $1 trillion mark--student loans.
  A CFPB official was cited by Bloomberg News saying that ``excessive 
student debt could slow the recovery of the housing market, as young 
people repay money for their education rather than buying homes.'' 
Massive student debt is also affecting consumers' ability to purchase 
goods and services.
  Yesterday, at the Subcommittee on Financial Services and General 
Government hearing focusing on student debt, Treasury Secretary 
Geithner came to talk about it. While the overall growth of student 
indebtedness is troubling, the most pressing concern is private student 
loans.
  Secretary Geithner also recognized that private student loans do not 
come with any of the consumer protections that Federal loans do. 
Private student loans are far riskier. Federal student loans have 
fixed, affordable interest rates--3.4 percent. They also have a variety 
of consumer protections. The Federal loans have forbearance in times of 
economic hardship, and they offer manageable repayment options, such as 
the income-based repayment plan.
  Private student loans, on the other hand, often have high variable 
interest rates--some have been quoted at 18 percent, the kind of rates 
you are careful about when it comes to your credit--and they have hefty 
origination fees and a lack of repayment options. Private lenders have 
targeted low-income borrowers with some of the riskiest, highest cost 
loans.
  In many respects, private student loans are like credit cards--except 
unlike credit card debt, private student loan debt can never be 
discharged in bankruptcy. In 2005, Congress changed the bankruptcy 
laws. I want to make a point here: I voted against it. Congress changed 
the bankruptcy laws and included a provision making private student 
loan debts nondischargeable in bankruptcy, except in the rarest of 
circumstances. I have never found one that qualifies. That means 
students are stuck with their loans for life.
  While the volume of private student loans is down from its peak a few 
years ago when it accounted for 26 percent of all student loans, 
private lending is still aggressively promoted by the for-profit 
college industry. The Project on Student Debt reports that 42 percent 
of for-profit college students had private loans in 2008, up from 12 
percent 5 years earlier. For-profit college students also graduate with 
more debt than their peers who graduate from public or private and non-
private colleges. Many for-profit colleges employ a business model that 
steers students into private student loans because of the 90/10 rule.
  For the record, private for-profit schools can only receive 90 
percent of their revenue from the Federal Government. They are the 
closest darn thing to a Federal agency you have ever seen, except they 
are making millions of dollars at the expense of the government and 
unsuspecting students and their families. So to find the 10 percent of 
nonfederal money, for-profit schools get the students to sign up to pay 
for 10 percent of their education in private student loans, even if 
they qualify for Federal loans, which are a much better deal.
  The 90/10 rule that requires at least 10 percent of revenue from non-
Federal

[[Page S2255]]

student aid sources makes this an imperative for many for-profit 
schools. As a result, many students are encouraged to take up private 
loans when they are still eligible for Federal loans--even when the 
lenders know the students are going to default--so schools can comply 
with the 90/10 rule.
  Kari Schaab contacted my office seeking relief from her burdensome 
student debt. She received a bachelor of arts from the International 
Academy of Design and Technology, a for-profit college. When she spoke 
to an admissions representative, she was enrolled almost immediately. 
Looking back, she says of the school: ``They take whoever is willing to 
pay.''
  She was assured she would be able to obtain a position in her field 
that would help her pay off her student debt. Reflecting on her 
experience, she said: ``I was young and didn't understand how much I 
would owe or what the loans were. I trusted them.''
  After completing her BA program, she decided that she would pursue a 
master's in her field. What she found out shocked her. No schools would 
accept her degree. It was a worthless diploma. With no job, no future 
in her chosen field, and about $58,000 in debt, she decided to switch 
careers entirely so that she would be able to pay off her student 
loans.
  She currently attends Oaktown Community College for nursing. She is 
unable to get a mortgage because of her old student loan debt of 
$58,000. Worse yet, her parents, trying to help her out, took out 
$19,000 in loans to help pay her tuition. Her parents are currently in 
chapter 13 bankruptcy, but that loan won't be discharged.
  We need to begin now to address this looming student debt bomb 
crisis. We need to protect students and prevent more students from 
stepping into the same traps that have caught so many others.
  Today, Senator Tom Harkin and I are introducing the Know Before You 
Owe Private Student Loan Act of 2012. Here is what it says: It requires 
the prospective borrower's school to confirm the student's enrollment 
status, the cost of attendance, and the estimated Federal financial aid 
assistance before the private student loan is approved. Often, students 
haven't applied for Federal student aid before they are asked to apply 
for private student loans, which are not nearly as generous or 
flexible.
  Requiring school certifications also gives the school the opportunity 
to make students aware of Federal Government student aid options.
  The bill requires schools to counsel the student about their options, 
tell them how the private student loan will affect those options, and 
what it will cost to repay the loans. Basics.
  In addition, schools will be required to inform students about the 
differences between Federal and private student loans. And the 
differences are dramatic. This will give students time to weigh their 
options, make a choice, and be informed.
  When students such as Kari contact my office about their student 
loans, they often don't know the difference between the two types of 
loans. They said: ``It was just a student loan, Senator.'' Most go on 
to say that if they had known, they would have thought more carefully 
about a private student loan and the debt they were incurring.
  For those students who do decide to take out a private student loan, 
the bill requires lenders to provide the borrower with quarterly up-to-
date information about their balance and interest rate.
  Finally, the bill requires lenders to report information to the 
Consumer Financial Protection Bureau about how many students are taking 
out loans and at what rates. There is very little information about 
private student loans currently available. More information will help 
Congress and the CFPB effectively inform consumers about these private 
student loans.
  This legislation is supported by a huge coalition of education, 
student, and consumer organizations. I want to thank Tom Harkin for his 
work on this bill, especially all of the hard work he has put in on 
these for-profit colleges.
  Mr. President, it is finally dawning on a lot of Members of Congress 
as they see programs such as ``Frontline'' talking about the for-profit 
college industry, and as they meet these students who are going to 
these worthless for-profit colleges--students who are just stacking up 
debt for a worthless diploma--it is time for our Federal Government to 
step up. How can we blame a student or their family if they are going 
to a school where we, the Federal Government, are willing to offer Pell 
grants and Federal loans? What is a student to think? Well, if it is 
good enough for the Federal Government to loan money, it must be a good 
school.
  In fact, in many instances--in most instances--these for-profit 
schools are not good schools. They are not offering a good education. 
There are exceptions, but too many of them are just bad operations. We 
subsidize them. Ninety to ninety-five percent of their revenue comes 
straight from the Federal Government. When they talk about freezing 
Federal employees' salaries, we ought to freeze the employees at these 
for-profit schools. They are the closest thing to Federal employees we 
have--95 percent Federal. We don't hear that from the other side of the 
aisle. But it is a fact.
  I will tell you this: This student loan debt bomb we are facing, 
which I talked to Secretary of the Treasury Geithner about yesterday, 
is going to explode on us, just as the subprime market loans did. More 
and more students are going into default. They can't pay back these 
student loans, and they are going to face life decisions that will 
change their futures and the future of the American economy.
  We now have 40 percent of students who are making payments on their 
student loans--40 percent. Sixty percent are not. Some are still in 
school, I will concede that point, but many of them just can't do it. 
We pile this debt on, we give them preferred treatment in the 
Bankruptcy Court so the lenders can't have the debt discharged, and we 
sit there and watch as the lives of these young people deteriorate.
  As one young lady testified at my hearing that she borrowed $37,625 
from the Federal government, $40,925 in private loans. She went to the 
Harrington College of Design in the suburbs of Chicago and ended up 
with a worthless diploma--worthless. Five years later, her debt is no 
longer $78,000; it is $98,000. It just keeps going up. She pays $830 a 
month, and the private student loan debt is exploding right in front of 
her. She can't pay it. She doesn't know what she is going to do. She 
said she is going to have to give up the little home she and her 
husband just bought. It looks pretty desperate for her, and her 
desperate situation faces her at the age of 32--32.
  How do we let this happen? Don't we have an obligation as a 
government, as a people, to stop this exploitation of children and 
their families? That is what is going on.
  This bill I have put in today will require these schools--all 
schools--to tell the students first that they have Federal loan 
eligibility left. It is 3.4 percent, not 18 percent. There is loan 
forgiveness if they become a nurse or a teacher. It is based on the 
amount of income they have later in life what their repayment is going 
to be. If they do get into trouble, they can have a delay in payment 
without watching their loan just stack up. These are basic things we 
build into the law to help students. Students and their families ought 
to know that, and that is what this bill is about.
  I commend this bill to my colleagues. I hope they will join Senator 
Harkin and me. I want to offer this on the Senate floor, and I want 
some colleagues to go home and face this student loan issue and listen 
to the families they represent. We are hearing from our Web site, and I 
invite students and families to come to my official Web site to tell 
their stories. As we learn what it is all about, we see the need to 
move on this, and move quickly.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record as follows:

                                S. 2280

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Know Before You Owe Private 
     Student Loan Act of 2012''.

     SEC. 2. AMENDMENTS TO THE TRUTH IN LENDING ACT.

       (a) In General.--Section 128(e) of the Truth in Lending Act 
     (15 U.S.C. 1638(e)) is amended--
       (1) by striking paragraph (3) and inserting the following:

[[Page S2256]]

       ``(3) Institutional certification required.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     before a creditor may issue any funds with respect to an 
     extension of credit described in this subsection, the 
     creditor shall obtain from the relevant institution of higher 
     education where such loan is to be used for a student, such 
     institution's certification of--
       ``(i) the enrollment status of the student;
       ``(ii) the student's cost of attendance at the institution 
     as determined by the institution under part F of title IV of 
     the Higher Education Act of 1965; and
       ``(iii) the difference between--

       ``(I) such cost of attendance; and
       ``(II) the student's estimated financial assistance, 
     including such assistance received under title IV of the 
     Higher Education Act of 1965 and other financial assistance 
     known to the institution, as applicable.

       ``(B) Exception.--Notwithstanding subparagraph (A), a 
     creditor may issue funds with respect to an extension of 
     credit described in this subsection without obtaining from 
     the relevant institution of higher education such 
     institution's certification if such institution fails to 
     provide within 15 business days of the creditor's request for 
     such certification--
       ``(i) the requested certification; or
       ``(ii) notification that the institution has received the 
     request for certification and will need additional time to 
     comply with the certification request.
       ``(C) Loans disbursed without certification.--If a creditor 
     issues funds without obtaining a certification, as described 
     in subparagraph (B), such creditor shall report the issuance 
     of such funds in a manner determined by the Director of the 
     Consumer Financial Protection Bureau.'';
       (2) by redesignating paragraphs (9), (10), and (11) as 
     paragraphs (10), (11), and (12), respectively; and
       (3) by inserting after paragraph (8) the following:
       ``(9) Provision of information.--
       ``(A) Provision of information to students.--
       ``(i) Loan statement.--A creditor that issues any funds 
     with respect to an extension of credit described in this 
     subsection shall send loan statements, where such loan is to 
     be used for a student, to borrowers of such funds not less 
     than once every 3 months during the time that such student is 
     enrolled at an institution of higher education.
       ``(ii) Contents of loan statement.--Each statement 
     described in clause (i) shall--

       ``(I) report the borrower's total remaining debt to the 
     creditor, including accrued but unpaid interest and 
     capitalized interest;
       ``(II) report any debt increases since the last statement; 
     and
       ``(III) list the current interest rate for each loan.

       ``(B) Notification of loans disbursed without 
     certification.--On or before the date a creditor issues any 
     funds with respect to an extension of credit described in 
     this subsection, the creditor shall notify the relevant 
     institution of higher education, in writing, of the amount of 
     the extension of credit and the student on whose behalf 
     credit is extended. The form of such written notification 
     shall be subject to the regulations of the Consumer Financial 
     Protection Bureau.
       ``(C) Annual report.--A creditor that issues funds with 
     respect to an extension of credit described in this 
     subsection shall prepare and submit an annual report to the 
     Consumer Financial Protection Bureau containing the required 
     information about private student loans to be determined by 
     the Consumer Financial Protection Bureau, in consultation 
     with the Secretary of Education.''.
       (b) Definition of Private Education Loan.--Section 
     140(a)(7)(A) of the Truth in Lending Act (15 U.S.C. 
     1650(a)(7)(A)) is amended--
       (1) by redesignating clause (ii) as clause (iii);
       (2) in clause (i), by striking ``and'' after the semicolon; 
     and
       (3) by adding after clause (i) the following:
       ``(ii) is not made, insured, or guaranteed under title VII 
     or title VIII of the Public Health Service Act (42 U.S.C. 292 
     et seq. and 296 et seq.); and''.
       (c) Regulations.--Not later than 365 days after the date of 
     enactment of this Act, the Consumer Financial Protection 
     Bureau shall issue regulations in final form to implement 
     paragraphs (3) and (9) of section 128(e) of the Truth in 
     Lending Act (15 U.S.C. 1638(e)), as amended by subsection 
     (a). Such regulations shall become effective not later than 6 
     months after their date of issuance.

     SEC. 3. AMENDMENT TO THE HIGHER EDUCATION ACT OF 1965.

       (a) Amendment to the Higher Education Act of 1965.--Section 
     487(a) of the Higher Education Act of 1965 (20 U.S.C. 
     1094(a)) is amended by striking paragraph (28) and inserting 
     the following:
       ``(28)(A) The institution shall--
       ``(i) upon the request of a private educational lender, 
     acting in connection with an application initiated by a 
     borrower for a private education loan in accordance with 
     section 128(e)(3) of the Truth in Lending Act, provide 
     certification to such private educational lender--

       ``(I) that the student who initiated the application for 
     the private education loan, or on whose behalf the 
     application was initiated, is enrolled or is scheduled to 
     enroll at the institution;
       ``(II) of such student's cost of attendance at the 
     institution as determined under part F of this title; and
       ``(III) of the difference between--

       ``(aa) the cost of attendance at the institution; and
       ``(bb) the student's estimated financial assistance 
     received under this title and other assistance known to the 
     institution, as applicable; and
       ``(ii) provide the certification described in clause (i), 
     or notify the creditor that the institution has received the 
     request for certification and will need additional time to 
     comply with the certification request--

       ``(I) within 15 business days of receipt of such 
     certification request; and
       ``(II) only after the institution has completed the 
     activities described in subparagraph (B).

       ``(B) The institution shall, upon receipt of a 
     certification request described in subparagraph (A)(i), and 
     prior to providing such certification--
       ``(i) determine whether the student who initiated the 
     application for the private education loan, or on whose 
     behalf the application was initiated, has applied for and 
     exhausted the Federal financial assistance available to such 
     student under this title and inform the student accordingly; 
     and
       ``(ii) provide the borrower whose loan application has 
     prompted the certification request by a private education 
     lender, as described in subparagraph (A)(i), with the 
     following information and disclosures:

       ``(I) The availability of, and the borrower's potential 
     eligibility for, Federal financial assistance under this 
     title, including disclosing the terms, conditions, interest 
     rates, and repayment options and programs of Federal student 
     loans.
       ``(II) The borrower's ability to select a private 
     educational lender of the borrower's choice.
       ``(III) The impact of a proposed private education loan on 
     the borrower's potential eligibility for other financial 
     assistance, including Federal financial assistance under this 
     title.
       ``(IV) The borrower's right to accept or reject a private 
     education loan within the 30-day period following a private 
     educational lender's approval of a borrower's application and 
     about a borrower's 3-day right to cancel period.

       ``(C) For purposes of this paragraph, the terms `private 
     educational lender' and `private education loan' have the 
     meanings given such terms in section 140 of the Truth in 
     Lending Act (15 U.S.C. 1650).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the effective date of the regulations 
     described in section 2(c).

     SEC. 4. REPORT.

       Not later than 24 months after the issuance of regulations 
     under section 2(c), the Director of the Consumer Financial 
     Protection Bureau and the Secretary of Education shall 
     jointly submit to Congress a report on the compliance of 
     institutions of higher education and private educational 
     lenders with section 128(e)(3) of the Truth in Lending Act 
     (15 U.S.C. 1638(e)), as amended by section 2, and section 
     487(a)(28) of the Higher Education Act of 1965 (20 U.S.C. 
     1094(a)), as amended by section 3. Such report shall include 
     information about the degree to which specific institutions 
     utilize certifications in effectively encouraging the 
     exhaustion of Federal student loan eligibility and lowering 
     student private education loan debt.
                                 ______