Fairness for Struggling Students Act seeks changes to private loan bankruptcy rules


by Mary Ellen Flannery

The Fairness for Struggling Students Act, a bill introduced to Congress this week by Sen. Dick Durbin (D-IL) and two colleagues, could go a long way toward relieving the near-impossible burden of student loan debt that rests on the shoulders of educators like Michael F. Powe of Alabama.

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Powe, an assistant principal and NEA member, and his wife, also an educator, collectively owe close to $400,000. “We cannot make it much longer,” he said. Their debt burden is so heavy that the couple is considering bankruptcy — “we are sinking under debt that started 20 years ago and was supposed to be negligible. We need bailing out bad!

The Durbin bill, which was also introduced by Senators Al Franken (D-MN) and Tom Harkin (D-IA) and co-sponsored by Senators Sheldon Whitehouse (D-RI) and Jack Reed (D-RI), could go a long way to helping the Powe family and others who hope for a fresh start through bankruptcy. It aims to restore fairness in bankruptcy law by allowing private student loan debt to be discharged in bankruptcy just like any other private debt. This is the way private student loans were treated from 1978 until 2005 when Congress created special protections for private student loan lenders — in a “provision snuck into… reform legislation in the dead of night,” said Whitehouse.

As student loan debt continues to grow, topping $1 trillion total last year or nearly $25,000 per borrower on average, the debt crisis mounts a growing threat to working families, said Durbin. “Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions, like buying a home or starting a family…It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.

Durbin teachers and first responders rallyWhile many borrowers do take advantage of federal student loans, which have newly expanded repayment options tied to income, many others rely on private loans. Those private loans offer one of the “riskiest, most expensive ways to pay for college,” noted NEA’s Mary Kusler, director of government relations, in a recent letter of support to Durbin.

Like credit cards, private student loans typically have variable interest rates that are highest for the people who can least afford them. But while credit card debt can be discharged in bankruptcy, students who borrow privately to finance their education can carry enormous amounts of debt for their entire lives. “I will die owing this money,” said retired Missouri special educator Nancy Brunner, who owes a whopping $170,000-and-growing in student loans.

In her letter to Durbin, Kusler praised Durbin for working to restore “some fairness to student lending.” She added, “In doing so, it will enable the bankruptcy system to work as a safety net so people can get the education they want with the assurance that they will be protected should their finances come under strain by layoffs, accidents, or other unforeseen events.”

Reader Comments

  1. I attended a school in 1989 and part of 1990. This school suckered me into believing they were top notch, and would even help me find a job. Also, when I signed on, they told me that I was no eligible for any loans, but I was eligible for many grants, Like an idiot, I signed on the dotted line for these “grants”. The school turned out to be horrible! I went for a job interview, and was told the school was a joke. I left that school, and applied for a local college some months later. I applied for a student loan, and I was told by their loan officer that I had already applied for several loans from my past school. To make a long story short, that fist school, who turned out not to be even accredited, suckered me into loans, not grants, and I now owe over $27000.00 in loans JUST FOR THE FIRST SCHOOL! I have talked and written, and all I get is the loans went to the school in my name. I was unable to graduate the second school due to family issues, and I have worked minimum wage jobs, they have taken my tax refunds, and still the interest adds up yearly. I have been told that these loans will follow me into my Social Security years. I cant make ends meet NOW, and I cant return to school to continue my education because they loans are in default. If I am allowed to file bankruptcy on these loans, I will be the first in line to do so. Especially since the ones accrued with a school who was nothing but a sham.

  2. I owe $85,000 in private loans and my husband owes $65,000 in private loans (those are in addition to our combined federal loan debt of $145,000). We are set up with a ZERO IBR payment for both of us because of our income, yet my private loan company wants $600 a month for 30 years for my loans and my husbands loan company wants $450 a month for 30 years for his loans. Yet financially we qualify for a ZERO payment with the feds!!! Our private lenders (Access Group and Great Lakes) won’t defer or forbear our loans anymore due to economic hardship, they say we maxed that out because they only allow 18 months of that kind of deferment. They won’t lower our interest rates or our monthly payments, and won’t work with us at all. I don’t work and my husband only makes $50k a year and we have 2 kids. We have always lived in an apartment, have been out of grad school for 7 years now, and are broke, living paycheck to paycheck, and can’t even pay our medical bills or past credit card debt that we accrued while attempting to survive in school since all of our loan money went to tuition and fees, let alone pay on ANY of our student loans.

    We attempted to pay on them what we could for years, sometimes making full payments, other times when an emergency came up, making partial or no payments at all. We have no savings and nothing to fall back on, so if we have an emergency the loans are the first thing to not get paid. We can only afford one, old, crappy car, and live in affordable housing because we can’t afford much else if we want to feed our children healthy food and put them in after school activities and live in an area with good schools (yes, the affordable housing is actually in a good area). We can’t even afford health insurance through my husband’s work (the State of CA) because they want $650 a month to cover our family, even though he is covered for free.That means we go to the emergency room every time we get sick because they don’t make us pay up front, we get billed for it, and then it just becomes ANOTHER unpaid bill.

    About one-two years ago we both stopped paying on our private loans altogether because we decided it wasn’t worth it anymore. We weren’t meeting their payment plan anyways and interest was accruing at ridiculous rates. We were struggling to feed our kids, constantly running out of money for food or anything weeks before my husband’s next paycheck. Utility bills were always behind, we have had 2 cars repoed due to being too far behind on our payments. We used to run out of gas all the time, had our cell phones cut off more than once (our only way to communicate with each other, our families, our jobs, schools, etc). We have also borrowed THOUSANDS of dollars from family and friends to help pay for all of these things and to bridge the gap of our living expenses when my husband lost his job last June for 4 months (thank god he wasn’t unemployed longer than that). We lived in AZ at the time and the unemployment system there is pathetic. The MAX award there is $240 a week, which isn’t even enough to put a roof over our heads, let alone food on the table or to pay any bills. We owe our family and friends about $36,000 for all the help they have given us over the years, and we are still working on paying that off as soon as we can. That doesn’t even count all of the money that my parents lent us that they later told me we didn’t have to worry about repaying.

    So after being tired of being one step away from homelessness we decided to speak to an attorney and decided that since they can’t get blood out of water we had nothing to lose defaulting on those loans. So far our bet has paid off. The loans eventually went to collections and we were called and harassed for a few months, but then it all stopped and we haven’t heard anything from them since. They aren’t federal loans so they can’t seize our bank accounts or assets or garnish our wages without going to court and suing us. And even then a mediator would decide how much we are able to pay and it would be the judge’s discretion how much, if any, we would have to pay the student loan companies each month. Taking us to court isn’t worth their time. The interest stops being accrued once the loans default, and they can’t collect anymore interest on us ever again, so now we only owe a fixed amount, specifically we only owe the original principle amount we borrowed plus whatever interest accrued since we borrowed it up till the day our loans defaulted. If they took us to court the judge would most likely not make us pay more than a few dollars a month, based on our income, which is gonna be worth nothing after inflation happens over time anyways. The lenders are stuck. They can’t collect what we owe because we have no money or assets, and they would pay thousands of dollars in addition to losing what we owe them to take us to court just to get almost nothing. The interest is what the lenders love anyways and where they make all their money, and they can’t collect that anymore. The are out of luck.

    Plus you have the statute of limitations as well which gives the loan companies 4 years to collect on the debt or they forfeit their ability to collect on it ever again. Every state is different on the time limit though, I know for CA it is 4 years. They might try to sue us before then, hoping that my husband’s income has gone up significantly enough to pay on the loans, but we are hoping that the law changes before then that will allow us to discharge these burdensome loans, discharge the unpaid medical bills and credit card debt, and start over fresh so that we can eventually buy a house for our family. My husband works for the government and will get his federal loans discharged in 10 years under the Public Service Loan Forgiveness program, so if we can get the rest of our debt discharged in bankruptcy by then, we will be in a good enough place to buy a house and a new car, send our kids to college without taking out more student loans, and actually contribute to the economy.

    My advice to anyone else in my situation is to make sure you have a payment plan worked out on your federal student loans because they are flexible, but to forget being a slave to your private loans and just default on them. Good credit isn’t worth paying on that debt if you can never afford to buy anything like a house anyways. What benefit is having good credit gonna do for you if you can’t meet the income requirements to use your good credit to begin with. Don’t be a slave to your debt. The loan companies are stuck and are dealing with record defaults because of their shark lending practices. It’s just a matter of time before the loans will be allowed to be discharged in bankruptcy once again and college grads will be a group of people who now have a chance of achieving financial success and happiness once again.

    To conclude, I think it is very unfair that people who have credit card debt, own homes, cars, etc, everything else that is “private” debt other than student loans, have available resources to get them out of their situation if it is bad for them financially, and that it doesn’t destroy them, yet we have none of those resources available to us at all. I know several couples that stupidly bought an overpriced home during the housing boom and decided it wasn’t worth it anymore when the housing market crashed and they lost all of the value in their home, so they decided to short-sale their homes a year ago because they got tired of making their large payments on a property that wasn’t worth squat anymore. They were able to get out of their loan and their financial obligation, and yet their credit is still good too boot! They were able to walk away and start over. They were still able to qualify for more credit cards and they plan on buying another house again in a year from now. It is ridiculous and completely unfair! If anyone wants to argue that people shouldn’t be able to discharge their student loans in bankruptcy then the laws should change for every other type of private debt so that people who buy homes are stuck paying on them even when the market goes south and they can’t afford it anymore. Why should they have an out and we don’t? Why should they be protected and we aren’t? Why should their private debt be considered any different from our private debt? While buying a house is a worthwhile investment for the economy, so is getting an education, and we shouldn’t be treated any differently because we chose to take out our private loan for an education instead of a house.

  3. My daughter is in the same situation. She now owes $155K and is not working in her field. She is paying approximately $1300.00 per month on a customer service job salary. I do not believe you should be penalized for trying to educate yourself. Sallie Mae avoids the calls and transfers her off to no one. At this rate she will never be able to purchase a home or even have one child. It just is not right that people who charge material things, gamble, or make really bad irresponsible decisions can write off their debt in bankrupcy but a poor college student who is trying to make something out of themselves is left in debt. My daughter is sickly and this is making her illness worse. It’s not as if she is trying to get out of what she owes, she would like consideration in lowering her interest. I don’t know how these people sleep at night.

    1. I’m in the same situation too. When I try to explain it to people the first thing they say is “Well you’re the one who agreed to pay that debt!”, as if I were some sort of criminal for wanting to get an education. The same person 6 years ago probably would have just as mindlessly said “YOU HAVE TO GET A DEGREE…YOU CAN’T DO ANYTHING WITHOUT A DEGREE”. The one comforting thing is to realize is that we aren’t alone and that there are many many MANY other people in the exact same situation, and that it just can’t stay like this. It CAN’T. I also don’t know how these parasites that call themselves human beings sleep at night, trying to act as if they aren’t doing anything wrong and that it’s our fault for trusting them. Tell your daughter to hang in there. I really think that things are going to change.

  4. I borrowed money to go to school 20 years ago with public loans. I borrowed 54K. Today, I owe 216K. The underlying motive of the loans had been written for Sallie Mae and stockholders, not young people hoping for a worthwhile education.
    Higher education was a tragic mistake for me as well.

  5. Yay….from someone with $146,000 in stuloans, who watched the government bail out the “too big to fail” banks that obligated ALL Americans a hefty $150,000 lifetime tax to pay back. This is only fair to the American people. We will pay for our loans whether we want to or not.

  6. There is no job security in teaching these days; Wisconsin is prime example. Contracts have been replaced by handbooks, if a non-renewal is received because of funding cuts one needs to re-apply for their job along with new applicants. No seniority. At will contracts and right to work laws provide NO job security. It is very difficult to pay back loans under the current politics and changes occurring in education. Students with good intentions to pay back loans cannot afford to because beginning teacher wages are low…to the point of qualifying for food stamps in some cases. Our beginning educators should be paid a salary that allows them to pay back loans, pay a mortgage, and purchase a car. I know many young people in education who cannot move ahead with their lives because of the lack of job security. Substitute teaching pays only $10.00 an hour in some districts in Wisconsin. That is why Unions and the ability to bargain is good for educators and the workforce; ultimately for the public good. Job security and a living wage provide a healthy community with its citizens purchasing and investing locally. Invest in your teachers and give them a break on their indebtedness!

  7. I couldn’t agree more with Tom Woodside. Is the cost of a student’s education a big secret? Do they not know how much they will be paying? I worked my whole college life, and my mother (strictly lower middle class) went to work to help me out – without taking a cent in government assistance. Forgiving the obligation is typical of the liberal mindset. Instead, delve into the irrational reasons for the ridiculously high costs, like paying college teachers such as Senator Warren hundreds of thousands of dollars for two semesters (how many courses?)! No one is worth that much. No wonder student debt is so high! I could go on, but those who need to listen won’t pay attention anyway. Address the causes before the fact, not after!

    1. I agree that we should be looking at the root cause of the massive amounts of debt students are incurring, but I don’t understand your argument about this being government assistance. This bill changes the way PRIVATE student loan debt is discharged, not public.

      If people can discharge the debt for a $50k Mercedes through bankruptcy, why shouldn’t struggling students be able to discharge the debt for their education? At least getting an education has long-run economic benefits for the nation as a whole, unlike the luxury goods debt that is usually discharged in these types of proceedings.

    2. Again…somebody else who totally misses the point. Just for everyone who is reading this thread for some support in their student loan crisis….completely disregard what “A college professor” says. He either just honestly doesn’t get it, or he’s just another guy trying to make honest hard-working people feel bad about themselves and not realize how much they’re being ripped off. I don’t think there’s a single person on here that “doesn’t want to take responsibility for their obligation”, and to even try to make people on here feel that way is completely reprehensible, whether you realize that’s what you’re doing or not. I know I’ve been trying my hardest to pay my student loans for YEARS. When I went to school I kept my GPA so high that I was selected to be in numerous honors societies and my work at that college is still being used for examples to teach current students. I come from a low-income household, too, but did that mean that my college was going to provide me with financial aid and grants that I needed? Of course not! Their only concern was to fill the college with as many people who could afford to pay their ridiculous tuition as they could. Once I got out of college the recession was in full swing and I had a very hard time finding any work. The problem is that the private student lenders are in every sense of the word PREDATORY LENDERS, and they do everything that they can to make making steady payments IMPOSSIBLE so that they can jack up the interest rates and keep you in debt forever. There is no two ways about it. They are predatory lenders…and they are PROTECTED BY THE GOVERNMENT SINCE 2005! That is not acceptable. I don’t care what any “Well I paid my way through college” blowhard says. I don’t even want to argue with you A College Professor or whoever Tom Woodside is…because you are just wrong…and I may as well be arguing with you about whether the world is round. I just want everyone on here to know not to listen to that kind of nonsense because the last thing that they need is another guy making them feel bad. They’ve already been through enough.

  8. This idea is ridiculous! If you incur the debt, your better consider beforehand how it will be paid off ,whatever the term. This is one more example of government removing individuals from their personal responsibilities.

    1. It’s not an either/or situation and the issue is not so much irresponsible borrowing as it is the predatory and illegal practices of these lenders. I have nearly $112,000 is private student loan debt that started with a carefully considered original borrowed amount totaling $40,000. Less than 1 year after graduation (which was 6 years ago), having only been in repayment for 4 months and never missed a single payment, my interest rates skyrocketed from 3-6% to 11-18%.My lender demanded a $1100 total monthly payment that was double the standard payment for a mortgage of the same amount and told me that $1100 barely covered interest. I was making an annual salary of $40K, but my lender REFUSED to consolidate my loans, admitting to me that they made more money if they did not consolidate. I applied for consolidation with 4 other private loan lenders, only to find they were all sister subsidiaries of my Big lender, thus I was already denied in their system.
      I honestly never wanted to borrow to finish school and have no other debt besides these loans. My parents, with a 6-figure income, said they could not directly to contribute to my education, which was always fine with me, but due to the rubric used to calculate all federal and school financial aid at the time, their income was considered in my financial aid package regardless and my EFC always = PARENTS PAY UP or BORROW. I borrowed after they, unsolicited, promised that they would pay half of my student debt because they so disliked my choice to work full time and place my undergrad on a part time backburner. They did not fulfill that promise and are not cosigners on any of my loans; in the end, it was my choice and at 22 years old I learned a hard, terrible lesson that will cripple my financial life. So, here I am, happily married, recently laid off from a flexible position with good pay and 8 months pregnant with my first child. If not for these loans, we could live very comfortably within my husband’s not huge but good salary and I could stay home with our son. As it stands, these loans will drain our savings significantly by the time our son is born, so I will be attempting to return to FT work ASAP after the birth of our son, which my Dr advises against, basically paying only for FT childcare and my loans. My Lender has refused to grant a forbearance based on financial hardship, because they can.
      Forgive me if I find it unjust that if I had bought a house I could not afford or a car beyond my means, then I could file for bankruptcy and start to rebuild. As it is, I simply tried to go to school, tried to make the best choice I could with every trusted adult assuring me of my good judgment, only to find myself entirely financially crippled for the remainder of my life. I would have been better off not going to college at all.

    2. “This idea is ridiculous! If you incur the debt, your better consider beforehand how it will be paid off ,whatever the term. This is one more example of government removing individuals from their personal responsibilities.”

      No, this is the government going back to the status quo before 2005, when private loans could be discharged or modified in a bankruptcy.

      The 2005 act was an example of the government removing loan companies from having to consider whether or not their applicants were credit worthy, something that one feels should be a fundamental duty of anyone who is engaged in the business of offering loans. Why should a for-profit student loan company be treated any differently than a credit card provider or other creditor when it comes to this particular debt?

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