Senator Harkin released draft proposals for Higher Education Act reauthorization in June. As part of this process, Senator Harkin created an email address to receive feedback by August 29. This was intended to facilitate the submisssion of feedback and suggestions from “interested stakeholders.”
Over the next month or so, we will be highlighting ideas in Senator Harkin’s proposals that could really help financially distressed student loan borrowers. (The full proposal is long, but includes many ideas that will help student loan borrowers)
We are starting with the proposal to require private student lenders to cancel loans due to a borrower’s death or disability. As we have written before, it is particularly difficult for private loan borrowers to get relief. It is extremely difficult (but not impossible) to discharge student loans, including private student loans, in bankruptcy. The lenders and others in the industry lobbied to make bankruptcy inaccessible for borrowers, but they have not stepped up to offer much in the way of other types of relief. Borrowers are stuck waiting for lenders to voluntary offer help because there is no comprehensive federal law, as there is for government loans, requiring these lenders to offer cancellations, flexible repayment or other options. (We filed comments with the CFPB last year focusing on the lack of relief and presenting recommendations for reform).
One key idea in Senator Harkin’s proposal would require school certification of all private loans made to students attending schools eligible for federal aid. Many lenders do this already, but this would be a new mandate. And as part of the certification process, schools would be required to vet the loans to make sure that among other provisions, the lenders offer death and disability cancellations.
This proposal is not perfect. It would not cover everyone and it would only apply prospectively. This is particularly difficult for borrowers stuck with the worst of the predatory student loans that private lenders irresponsibly pushed on borrowers up until the financial crash. This is why the bankruptcy relief provisions in Senator Harkin’s bill are just as critical. Combining the new mandatory certification provisions with expanded bankruptcy relief would go a long way to helping private loan borrowers get out from under crushing debt.