So, there's something else on the table for student loan debtors! SAFRA isn't just the end. Thank the high heavens! Senators and U.S. Representatives have introduced new legislation which would enable people to discharge their student loans in bankruptcy again. You can count on Sallie Mae raising holy hell about this one . . . But I am glad to see it out there, and I hope that the private debt swap bill still has a chance too (it's my understanding that Sen. Sherrod Brown's bill hasn't been thrown out, and that's quite promising to know).
So, on that note, this Friday is even better than I thought! Fridays have always been my favorite day of the week. They still are. Now I know what you're thinking. But, no, it's not just because it's Friday that makes this day so great. My favorite class is on this day of week, so I always look forward to teaching and helping such wonderful, wonderful kids learn English.
I urge all of you to put a calls into all of these Senators' offices and thank them for introducing this legislation.
I didn't think much of Franken, but props to him for signing on to this.
does this bankruptcy bill retroactive back and if so how far because it was only a couple months ago that I filed?
This sounds promising on the surface, but weren't most private student loans nondischargeable anyway before 2005 since most were flimsily tied to "nonprofits"? Reading the link below, it appears that going back as far as 1984 this was the case? These lenders are a sneaky bunch aren't they?
If so, a lot of good this bill is going to do for the majority of private student loan borrowers. These "mixed loans" are truly horrifying. Not only can you not take advantage of IBR because they are not federal, but you still can't discharge them because they are "tied to a nonprofit". These loans are truly like a cancer that just won't go away despite every treatment available! But yes, I do concede that this is a step in the right direction. Whoever writes this bill needs to strike out the "nonprofit" wording to make this bill fully effective. I just hope that something is done soon before current borrowers are in their nineties and still getting harassed by evil Sallie Mae.
This is HUGE!
Please call all five Senators to thank and support them, and maybe more importantly, call your own congress person and senator to demand that they join in on this effort immediately and often!
The most encouraging news I've received in a long time!
Should this come to pass, it would be a boondoggle for bankruptcy lawyers and a stinking shame for the victims of the student loan scam industry. Of course, I'd sharpen my BK skills again for the flood of new clients at $2,500 a pop and up. But think of the stigma these young people would have to carry for years thereafter - some for the rest of their lives. Somehow, I still feel there has to be a better way.
Don - I understand your perspective, but I still think it's a good sign. Have you read much about Sherrod Brown's private debt swap? I am most encouraged because they haven't stopped with SAFRA, and I have more news on my end - people will be very pleased.
Don - just so you are aware, I don't think that bankruptcy is the best solution. I never have, and that's why I agree with your point. However, I still view this legislation as a step in the right direction, and that's precisely because they haven't just stopped with SAFRA.
Medicinesux….good points you make. Neither the House nor the Senate bills are available to the public yet, but in the meantime it might offer a ray of hope to take a look at Sen. Durbin’s language in the bill he previously introduced (S.1561), to get a glimpse of his thinking on this subject. Bob Lawless over at Creditslips analyzed the 2007 bill, and summarized it thusly: “Under Senator Durbin's legislation, only student loans ‘made, insured, or guaranteed’ by a governmental unit would be nondischargeable in bankruptcy (absent a finding of undue hardship). The legislation would allow loans from private or nonprofit lenders to be dischargeable in bankruptcy. The discharge of loans from nonprofit student loan lenders would be a change from the pre-2005 law and was prompted, as I understand it, from reports that for-profit private lenders were sometimes working through nonprofit organizations. Also, as I read the legislation, it would make loans from state, but not private, universities and colleges nondischargeable. Take that Harvard.” Of course, Sen. Durbin’s 2007 attempt to pass this legislation failed, but I think it’s pretty clear that he gets it…that the nonprofit involvement was a sham built into the system by Sallie, et al. I would be much more concerned if you start hearing about adding “time in repayment” language in the bill. Cryn was at Rep. Cohen’s hearing, and that very thing was discussed as a possible compromise. Once language like that makes it into the bill, the legislation will help very few people because requiring a set amount of time that a loan has been in repayment will be interpreted by everyone differently and will require a special lawsuit within the bankruptcy to sort it all out. That means spending thousands more on an attorney. All deferments, forebearances, time spent back in school, etc. will be tacked on to the time requirement, and it could be ten or twenty years before a given loan is dischargeable. If this is allowed, it will be an absolute mess. The bill numbers for the current House and Senate bills are H.R.5043 and S.3219. After the GPO is done with them, they’ll be posted at Thomas.loc.gov, but probably not until next week.
While we await the text of the newly introduced House and Senate bills, here's a link to Sen. Durbin's 2007 bill which may offer some insight on what to expect:
I am very excited about this, I am going to hound our congressman here in Maryland.
Cryn - Anything that eases the burden carried by the indentured educated class is a step in the right direction. I'm pleased to see that Dick Durbin is the author of this measure because of his stature in the Senate; it lends immediate credibility to the bill and makes it that much more likely to fly. But the collateral consequences of having to go belly up for so many leave me clucking my tongue.
Of course, I will help them for the least possible fees in the local District Court (Northern District of Illinois) as will dozens of other sympathetic lawyers, but "debtor counselling", court filing costs and some amount of attorney fees together still run into the thousands of dollars when tolled together. The end product is a debt free record with a lousy FICO for at least seven years and general difficulty in obtaining significant credit for years thereafter - in some cases forever.
For those who need moral clearance, it can present other problems: anyone who has to establish good character with Bar examiners has some serious explaining to do. Those people even want to know about parking tickets and speeders as a teenager - take my word on it.
All the same, the bill marks progress.
It's nice to be concerned about the "stigma" these borrowers will have to carry should they be allowed to discharge their student loan debts through bankruptcy, BUT.... where is your concern for the system (institutions and therefore individuals) who must absorb these losses? This will hurt EVERYone while making it easier on a select group. Again. How much of this can America take? Why not a bill to restructure the debt, allow affordable payments, reduce penalties?
Who said I wasn't for restructuring things radically so that people could be helped in getting out of this debt? I never once suggested that that wasn't a better option. If you read my blog closely enough, you'll know that I have never been a huge fan of this idea. That's not my point, however. I am just encouraged by the fact SAFRA isn't the last measure. You are also making the assumption that people will just immediately line up and declare bankruptcy. Most people want to pay back their debt. If you read the comments on this blog closely, you'd know that. Moreover, why is we have system in place that allows INSTITUTIONS to write off their debts, while it's more difficult for individuals? There's never any moral outcry when institutions or businesses walk away from their debts, but if your neighbor or co-worker does it, and God forbid a person like you would find out, well, they're just a bum, right? Absurd.
It's also a good threat against these lenders who have complete power over the borrowers. Borrowers in this system have NO leverage, and no one, no one, is standing up for them - they deserve a voice, too. That's why I continue to fight for their rights, and this legislation, I hope, isn't the last to be rolled out for those who deserve more than what they have now, which is nothin' . . .
contrary to some opinions, we do not all want to rush out and declare bankruptcy. but some negotiation room would be ever so helpful.
we were treated in an unlawful manor, harassment, charged excessive usurious fees, had our interest capitalized as principle, are still being charged 8% interest on the 400% increase principle. . .and these have always been federally backed student loans.
and the reply we always receive 'so sorry it's the law'. a better response might be 'let's see what can be done'. the laws as they are now can tie an ever increasing amount to people forever, until death.
I'm 27 with about $40,000 in interest from Sallie Mae and another $35,000+ in federal loans. I would love the opportunity to drop that $40,000 bill, but I gotta admit the idea of doing so through bankruptcy concerns me a bit.
My next big ticket goal is working on buying a house, and seeing the SM bill go bye-bye is a great step. However, how badly would this impact my credit, and chances of buying a house or anything else, say opening a line of credit or even renting an apartment/townhouse?
Regardless, this is a great step...thanks so much Cryn!
looks like Sallie Mae is well aware of this coming bill and has been aggressively working behind the scenes to have their say-
"We [Sallie Mae] have been in pretty active in discussions with those on the Hill about how it might make sense on how that should be structured. At this point we don't believe that there will be any bill that would allow borrowers to declare bankruptcy quickly. We don't see that as a viable alternative. Our discussions on where this settles out, if anything indeed does get passed, has to be passage of time where graduates are making payments before they have an ability declare bankruptcy. If you look at statistics, the important thing is to have students graduate from school. If they don't graduate probability of default is a multiple of probability if they do graduate. If they graduate, make payments and then run into problems, I don't see that as a material risk."
Ahh, there it is. Just as I suspected. "Passage of time". This bill will be meaningless if Sallie Mae is again allowed to write legislation for us. Everyone should be up in arms about this. Sallie Mae literally wrote the language that appears in the bankruptcy law changes of 2005. Don't allow them to get away with it this time. Call call call and write write write and force your elected representatives to write their own legislation for a change.
The House is holding a hearing on Thursday. http://judiciary.house.gov/hearings/hear_100422.html
Anonymous - that's an excellent point. This is why we must continue to write and to call. We don't want them playing a hand in the writing of this legislation.
Anonymous - I attended the previous one; it took place last Fall.
Hey, if Sallie Mae has a hand in writing this Bill, I think three or four of us should also be invited to do the same... Fair is fair :)
Any word on how that House meeting went from this morning?
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