Proposed Illinois legislation would allow private student loans to be discharged in bankruptcy
April 21, 2010
One West Side congressman has proposed legislation to further strengthen this year's college student loan overhaul and would allow for private student loans to be discharged in bankruptcy.
U.S. Rep. Danny K. Davis, D-7th, U.S. Sen. Dick Durbin, D-Ill., U.S. Rep. Steve Cohen, D-Tenn., and U.S. Sen. Al Franken, D-Minn, are the sponsors of the Private Student Loan Bankruptcy Fairness Act of 2010.
“Why should student loans be treated differently? Private education debt is no different than other consumer debt; it involves private profit and deserves no privileged treatment,” Davis said. “Medical students often take out private loans and the amount can be overwhelming and sometimes impossible to ever repay.”
He added that before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy.
This protection has been in place since 1978 and was intended to safeguard federal investments in higher education.
But Davis' proposed 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.
Durbin, who first introduced this legislation in June 2007, said private loans usually carry higher interest rates than government issued student loans and often reap huge profits for lenders, such as banks.
“(This) bill takes an additional step toward restoring fairness in student lending by placing student loan companies in the same position as virtually all other private lenders,” said Durbin.
And because Blacks are disproportionably lower income they tend to borrower more from private lenders, Davis told the Defender.