Three U.S. Senators unveiled legislation Wednesday to reverse a 2005 change in bankruptcy laws that makes it nearly impossible to have private student loan debt discharged.
The Fairness for Struggling Students Act of 2013 is cosponsored by Sens. Dick Durbin (D-Ill.), Sheldon Whitehouse (D-R.I.) and Jack Reed (D-Ill.). For Durbin, a high-ranking Democrat, it's the return of legislation he authored in the previous session of Congress.
Student loans are the largest form of consumer debt, topping $1 trillion nationally, but they're the only type not eligible for bankruptcy. Rich Williams, a former higher education advocate for U.S. Public Interest Research Group, described private student debt as "a special circle of bankruptcy hell reserved for dads who avoid child support and tax evaders."
Federal loans haven't been eligible for discharge in bankruptcy since 1978, to safeguard taxpayer money, but it wasn't until 2005 that this was extended to private student loans. Durbin's office noted in a release that private student loans are quite different from federal loans. Government-issued student loans carry mostly favorable terms, lower interest rates, income-based repayment plans and more deferment and forbearance options. Private student loans often have double-digit interest rates and have no income-based repayment options.