Bankruptcy

After Tuesday's surprisingly one-sided hearing before the Senate Banking Committee on the credit crunch, it's clear that Congress is prepared to take steps to add liquidity to the student loan marketplace. But as lawmakers move forward with plans to bailout student loan giants like Sallie Mae, they shouldn't forget about the financially-distressed borrowers who have been victimized by the lenders' predatory private loan practices. Surely, they deserve a helping hand too.

Over the last two years, we at Higher Ed Watch have written extensively about how loan companies' aggressive marketing practices and cozy relationships with colleges have pushed students to take on unnecessarily high levels of expensive private student-loan debt, often before they have exhausted their lower-cost federal loan eligibility. In fact, at least one in five private student loan borrowers take out a private loan before they exhaust safer, cheaper federal Stafford loan options.

Yesterday, we took issue with arguments made by a key lawmaker who helped defeat a measure in the U.S. House of Representatives that would have allowed financially-distressed borrowers to discharge their private loan debt in bankruptcy.

In attacking the proposed amendment to the House Higher Education Act reauthorization legislation, Rep. Ric Keller of Florida, the ranking Republican on the House subcommitee on higher education, said that "the current system" offers borrowers who find themselves in dire straits with all of the relief they need. He argued that struggling borrowers can work with private loan providers to obtain "more flexible" repayment options. He also noted that private loan borrowers who demonstrate that repaying their loans would cause "undue financial hardship" can have their loans discharged in bankruptcy.

"The Bankruptcy Code," Keller said, "already provides a provision for undue hardship for those people who truly need it."

The U.S. House of Representatives delivered a body blow to financially-distressed student-loan borrowers earlier this month when it voted down an amendment to a key higher education bill that would have allowed private student loans to be dischargeable in bankruptcy. Overall, the amendment, sponsored by Rep. Danny Davis (D-IL), failed by a vote of 179 to 236, with nine Republicans supporting the measure and 52 Democrats opposing it. But some very strange arguments were made.

In attacking the Davis amendment, Rep. Ric Keller of Florida, the ranking Republican on the House subcommittee on education, expressed sympathy for those who find themselves in dire straits and can't repay their loans. But then he argued that "the current system" offers them all the relief they need:

"Now what is a better way? The better way is the current system. You get out of school, you've got 10 years to make your payment, and if you can't make it, you work with the lenders for more flexible options, let you pay over 25 years. The Bankruptcy Code already provides a provision for undue hardship for those people who truly need it."

The U.S. House of Representatives has a chance today to provide much-needed relief to low-income and minority students who have fallen victim to predatory private student loan practices by Sallie Mae and other lenders.

House Members will vote on an amendment, sponsored by Rep. Danny Davis (D-IL), that would reverse a 2005 law making it virtually impossible for borrowers who are in financial distress to discharge private student loans in bankruptcy.

The leaders of the House Committee on Education and Labor introduced legislation on Friday that would go a long way in addressing consumer advocates' biggest concerns regarding private student loans. The Higher Education Act reauthorization bill would, for instance, bar colleges and lenders from making

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In 2005, Congress tucked into the bankruptcy bill a provision making it virtually impossible for borrowers to discharge private student loans. That provision -- which was added in a secret conference committee, received no public debate, and had no named Congressional sponsor --represents a glaring example of politicians serving corporate interests over regular people.

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House Committee Embraces New America's Loan Auction Proposal

The House Education and Labor Committee has embraced the New America Foundation's proposal to use an auction mechanism to set student loan subsidies. The Committee unanimously adopted…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

One of the reasons our debt-based college aid system puts up barriers to college access is that student loans are treated differently under the law than any other unsecured debt.

In the case of a defaulted student…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Last week, the Chronicle of Higher Education reported on an internal strategy document from Sallie Mae listing the company's goals in lobbying the new Congress. Not surprisingly, at the top of the list was the need to "Protect FFELP economics" -- in other words, to preserve…

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