Reigning in Private Student Loans
Today I received an email from projectstudentdebt.org regarding a hearing in Washington on Sept 23 concerning the toxicity of private student loans. A very thorough and interesting testimony by Lauren Asher, President of the Institute for College Access and Success can be read here
The Obama Administration is pushing for the creation of a new Consumer Financial Protection Agency (CFPA), which would protect consumers from risky financial products and services, including private student loans. A strong CFPA could help protect private loan borrowers from deceptive marketing and unfair loan terms and treatment.
The financial industry is lobbying hard against the CFPA, and consumers need to speak up before it’s too late. Please tell your members of Congress that we need a CFPA with authority over all private student loans to protect borrowers and ensure private loans are only used as a last resort.
Please click the link above and write to your elected officials- it took me less than 45 seconds. Hopefully, this will be the first step towards getting private loans put back on the same wavelength as other consumer debts like credit cards. I wasn’t going to take the time to bother but when I read the following excerpt from the above testimony I felt compelled to do something and write-
“Ironically, private loan creditors remain fully eligible for the bankruptcy protection that their borrowers are now denied. Bankruptcy helps failed businesses discharge outstanding debt and make a fresh start regardless of the nature or merits of their product or business model, or the types of debt they carry.
Last year, The Education Resources Institute (TERI) declared bankruptcy with tens of millions of dollars in outstanding debt. TERI guaranteed private student loans for First Marblehead Corporation, which was a major player in the private loan market and a strong advocate for making private loan debt non-dischargeable for borrowers. First Marblehead rode the wave of securitizations that led to the current credit crunch, packaging private student loans from other lenders and selling them as investments. When these loans experienced higher than expected default rates, TERI went bankrupt and First Marblehead’s stock tumbled. Apparently, bankruptcy has enabled TERI to reorganize, and reports of its impending recovery buoyed First Marblehead’s stock last month. Meanwhile, TERI’s website includes this reminder for private loan borrowers:
“The bankruptcy laws provide that, unlike, other commercial debt, a loan guaranteed by TERI can not be discharged or forgiven in a bankruptcy proceeding unless the borrower proves that repayment of the loan will cause him/her undue hardship.”