[Congressional Record (Bound Edition), Volume 156 (2010), Part 4]
[Extensions of Remarks]
[Page 5714]
[From the U.S. Government Publishing Office, www.gpo.gov]




 INTRODUCTION OF THE ``PRIVATE STUDENT LOAN BANKRUPTCY FAIRNESS ACT OF 
                                 2010''

                                 ______
                                 

                            HON. STEVE COHEN

                              of tennessee

                    in the house of representatives

                        Thursday, April 15, 2010

  Mr. COHEN. Madam Speaker, I am pleased to join my distinguished 
colleague, Representative Danny Davis of Illinois, in introducing today 
the ``Private Student Loan Bankruptcy Fairness Act of 2010.'' This 
legislation would amend the Bankruptcy Code so that private student 
loan debt can be discharged in bankruptcy. This bill will help to 
ensure that people who seek higher education to better their futures 
are not dissuaded from doing so by the threat of financial ruin.
  Under current bankruptcy law, educational debt is not dischargeable 
in bankruptcy unless the debtor can establish--through an adversary 
proceeding--that repaying her educational loans would impose an undue 
hardship on her and her dependents. Congress's intent in enacting this 
provision back in 1978 was to protect Federal student loan programs 
from fraud and abuse by student borrowers and ultimately to protect the 
taxpayer dollars that fund Federal student loan programs.
  Inexplicably, this provision was extended in 2005 to protect for-
profit educational lenders, even though doing so was not consistent 
with Congress's rationale for making Federal student loans non-
dischargeable. This 2005 change is troublesome because private student 
loans often lack the consumer protections of Federal loans, making the 
need for bankruptcy much greater.
  Federal student loans offer certain protections to minimize the risk 
that a financially distressed debtor will need bankruptcy relief, 
whereas private student loans are not required to have, and often do 
not have, such consumer protections. For example, Federal loans have 
fixed interest rates, whereas private loans often have variable rates 
that can be as high as 19 percent. Unlike Federal loans, private loans 
have no limits on origination fees, which can be as high as 9.9 
percent, with lenders often charging additional fees such as late fees 
or fees for any deferments or forbearance, and half of the private 
loans in one survey had no forbearance option at all. Federal loans 
also provide flexible options for distressed debtors, such as income-
based repayment plans and partial or complete loan forgiveness in some 
circumstances, whereas private lenders are not required to offer such 
options. For these reasons, private loans should be dischargeable in 
bankruptcy.
  The bankruptcy system should work as a safety net that allows people 
to get the education they want with the assurance that, should their 
finances come under strain by layoffs, accidents, or other unforeseen 
life events, they will be protected. Our legislation takes a modest but 
important step in achieving this goal.
  I thank Representative Davis for working with me in crafting this 
important legislation. I also thank Senator Richard Durbin for 
introducing a similar bill in the Senate. I urge Congress to act 
quickly and pass these bills.

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