Fairness for Struggling Students Act of 2013 - Revises federal bankruptcy law with respect to the exemption from the exception to discharge in bankruptcy for certain educational loans if excepting such debt from discharge would impose an undue hardship on the debtor and debtor's dependents. Limits such exemption to...
Fairness for Struggling Students Act of 2013 - Revises federal bankruptcy law with respect to the exemption from the exception to discharge in bankruptcy for certain educational loans if excepting such debt from discharge would impose an undue hardship on the debtor and debtor's dependents. Limits such exemption to the existing ones for: (1) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit or made under any program funded in whole or in part by a governmental unit; and (2) an obligation to repay funds received from a governmental unit as an educational benefit, scholarship, or stipend. Repeals the current exemption for: (1) any loan made under any program funded in whole or in part by a governmental unit or nonprofit institution; and (2) any other qualified education loan incurred by an individual debtor on behalf of the taxpayer, the taxpayer's spouse, or any dependent, including indebtedness used to refinance a qualified education loan. (Thus makes both kinds of loans nondischargeable in bankruptcy.)
Consumer Action supports S 114 because It is inappropriate and unfair to distressed borrowers to treat private education loans more harshly than comparable types of debt. This legislation would restore fairness for struggling Americans who pursued the American dream through higher education and training, only to find themselves in financial distress.
We hope and believe that at long last, the current legislation will be successfully passed. However, there are 2 points that must be accommodated if the current legislation is to be meaningful.
1. No Repayment Requirement
It is wrong to require a severely distressed borrower to find a way to make payments on their private loans for many more years before being afforded the same kinds of bankruptcy protections that exist for every other type of loan. This requirement was not in place pre-2005, and thus has no rational reason for being in the forthcoming legislation.
There is a so-called "middle ground" framed into this debate that would consist of a compromise waiting period, as opposed to a repayment period, but we do not see any reason to cede further ground relative to what was taken away in 2005 and before. I hope you will agree .
2. No Exemption for Non-Profit Private Lenders
There should be no distinction made between for-profit, and non-profit lending participants for these loans with respect to dischargeability. To allow non-dischargeability when a non-profit makes, insures, or otherwise participates in the loan only provides a loophole that can and will be exploited to maintain non-dischargeability whenever possible.
In general, we believe it is very clear at this point that removing bankruptcy protections from both private and federal student loans has led to predatory lending behavior, has enabled unchecked inflation in the cost of college, has led to intolerably poor oversight in the case of federal loans, and caused a plethora of other negative consequences that have far outweighed any short term financial benefits to the lending side of the system. The harm this has done to the citizenry has been incalculable. Therefore, we believe that bankruptcy protections must be returned to all student loans as quickly as possible. The current legislation is an important start, however, and so we look forward to its quick passage.