Student Loan Related

Law Professors Propose Regulations to Help Protect Private Student Loan Borrowers

Written by Steve Rhode

Prentiss Cox, Judith Fox, and Stacey Tutt are professors of law at various law schools. They’ve taken a look at our very broken private student loan system in America and presented some needed changes to help provide relief for consumers.

Their published paper begins with:

“Private student loan borrowers arguably have the fewest protections of any users of credit in the United States. In a scarcely debated amendment to federal bankruptcy law in 2005, private student lenders gained the same protections against discharge previously afforded to federal student lenders. Yet private student loan borrowers received none of the rights available to federal student loan borrowers. These include income-driven repayment, relief from repayment on disability, loan discharge for fraud or closed schools, and public service loan forgiveness. Private student loan borrowers thus have neither the bankruptcy protections afforded to nonstudent loan debtors nor the repayment and debt relief rights of student borrowers under the federal loan program.

This lack of consumer protection has particular consequence when considering the plight of for-profit school students saddled with private student loans. Some of the worst abuses in the proliferation of higher education debt have been perpetrated against for-profit school attendees. The vast majority of private student loans are cosigned, typically by older family members. This combination of private student loans and for-profit school attendance impacts a much broader range of consumers than would a comparable number of federal student loans.

We suggest two types of state legislation to protect these debtors. For prospective for-profit school private borrowers, we propose incorporating some of the protections of federal student loans through the use of a state equivalent to the Federal Trade Commission “Holder Rule.” For all private student loans, we propose a requirement that private lenders engage in a mandatory settlement process, similar to those used by states during the recent foreclosure crisis, as a prerequisite to using state courts for debt collection.”

They Are Correct

While progress is being made in the area of being able to attempt to attack some private student loans in bankruptcy and win a discharge of the debt, it is not common.

You can read the author’s suggestions in the paper below.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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