Private Student Loan Rehabilitation Bill Brought to the Senate
Private student loan borrowers may soon get some protection from the government if they default on their loan repayment plan, thanks to the U.S. Senate Banking, House, and Urban Affairs Committee. On Dec. 6, that committee greenlighted a bipartisan legislation provision, which was spearheaded by U.S. Senators Shelley Moore Capito (R-WV) and Gary Peters (D-MI). The bill now will face the whole Senate as proponents work to get it passed.
The provision, which is part of a broader bill, would allow borrowers who default on payments to clean up one ding on their credit so their entire futures aren’t penalized. That would put private student loan borrowers on a level playing field with students who borrow federal students loans. Those who use federal student loans are already allowed to expunge one default off their credit report.
How This Can Have an Impact on Students
By the time they graduate from college, many students have a hefty amount of debt they must pay. But often as they begin their careers, those same students may be landing only entry level positions which carry a modest wage.
A modest paycheck when mixed with sizeable student loan debt can be a recipe for disaster for some students. This bill is aimed at helping students with non-federal loans achieve and maintain a healthy credit report at a time when they are most vulnerable to defaults.
“Students invest a lot in their education, and we need to do our part to help them maintain a secure financial footing as they pay off loans,” Senator Capito said, according to an UpMatters.com article.
Peters said this bill would benefit those who needed help “to repair their credit and secure their long-term financial success.”
The defaults that show up on credit reports can have steep consequences – they may prevent that loan holder from buying a car to drive back and forth to work, getting a home or an apartment, and possibly even landing certain types of jobs.
How the Student Loan Rehabilitation Program Works
While this may seem like an automatic get-out-of-jail free card, it’s not unlimited power for students who keep defaulting. This bill would give them the opportunity to remove one default from their credit report after they made a number of timely payments on their loan, much like the federal student loan rehab program. In other words, this bill won’t help those who haven’t made any attempt at paying their student loan balance.
Public loans, such as federal loans, are still the primary source of loans for many students – currently approximately 90 percent of all student loans are public ones. But there are still billions of dollars held in private student loans and there isn’t a shortage of borrowers who are defaulting on those loans. The Consumer Financial Protection Bureau reports in excess of 850,000 of all private student loans have reached the point of default.