WASHINGTON – Sen. Dick Durbin has proposed legislation that would allow private student loan debt to be discharged in bankruptcy, as all non-mortgage debt can be, although borrowers still would be responsible for paying federal student loans.
The proposal would reverse a 2005 provision that made privately issued student loans nondischargable in bankruptcy.
Sen. Durbin, the Illinois Democrat who sponsored the debit fee cap, has held several town halls in Illinois on the issue, and is now gathering support in Congress for his bill.
“While the overall growth in student indebtedness is troubling, the most pressing concern is private student loans,” Durbin, said during a Senate hearing last week. “These private student loans are a far riskier way to pay for an education than federal loans.”
The bill comes as increasing numbers of credit unions are offering private student loans to replace the federal loans that were eliminated two years ago. NAFCU President Fred Becker on Wednesday said the trade group is still looking over the proposal to determine exactly how it would affect credit union loans. “We have some concerns,” Becker told Credit Union Journal. “We are reviewing [the legislation] to see exactly what it means.”
Durbin is considering attaching the bill to a related proposal on student loan interest rates that has a higher chance of movement this session.
On July 1, a five-year reduction in the interest rate for new federally subsidized Stafford loans will expire, doubling the rate from 3.4% to 6.8%. Sen. Jack Reed, D-R.I., and Rep. Joe Courtney D-Conn., have introduced a bill that would keep the rate at its current level. The lawmakers said that letting it rise could cost some students as much as $5,000 over 10 years. President Obama has proposed extending the lower rate through 2013. The Congressional Budget Office estimates that would cost taxpayers about $6 billion.
