Sen. Durbin Favors Making Private Loans Dischargeable via Bankruptcy Proceedings
By: Steve Grumm
Senator Dick Durbin doesn’t understand why some student loans are treated differently than other forms of personal debt. And he’s looking to make a change. From the Blog of the Legal Times:
The congressional overhaul of bankruptcy laws in 2005 included a provision that students with private college loans can’t discharge those debts in bankruptcy courts, and now Sen. Dick Durbin (D-Ill.) wants to change that.
At a hearing on Capitol Hill today, Durbin said there is no reason why private student loans should be treated differently from other private debt in bankruptcy. “That means that students are stuck with these loans for life,” he says. He wants to restore law to pre-2005 standards.
“How in the world did that provision get into the law?” Durbin said. “It was a mystery amendment. We can’t find out who offered it.”
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G. Marcus Cole, a Stanford University law professor, said he was sympathetic with the plight of students trapped in huge debts, but was concerned about allowing loans to be discharged. Durbin’s legislation would raise the cost of student borrowing for all student loans, would dry up the entire student loan market, and reduce the affordability of such loans.
In student loans, the person is borrowing against their future capital, Cole said. “If you take away the exemption from discharge, you’re essentially saying to the lender that they can’t look at that future for sure,” he said. “That increases the risk premium that has to be charged across all loans.”
Durbin said he did not buy that argument. “If it really was so compelling, it wouldn’t be slipped in as it was here.”