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Congressmen Cohen, Davis and Swalwell Introduce the Private Student Loan Bankruptcy Fairness Act

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By Press Release: July 30th 2021

WASHINGTON – Congressmen Steve Cohen (TN-09), Danny K. Davis (IL-07), and Eric Swalwell (CA-15) today introduced the Private Student Loan Bankruptcy Fairness Act. This legislation would restore fairness in student lending by treating privately issued student loans the same as other types of private debt are treated in bankruptcy. Until 2005, this type of student loan debt was dischargeable in bankruptcy, but a change to the bankruptcy code that year removed that consumer protection.

Congressman Cohen made the following statement:

“People who seek a higher education to better their futures should not be discouraged from doing so by the threat of financial ruin. No one wants to declare bankruptcy, but the bankruptcy system should work as a safety net allowing people to get the education they want with the assurance that, should their finances face the unexpected strains of layoffs, accidents or other unforeseen events, such as our ongoing pandemic, they will be protected. Our bill would provide that assurance.”

Congressman Davis made the following statement:

“Student loan debt is crushing millions of borrowers, especially students of color. The pandemic’s dual economic and health crises have only exacerbated this harm, and education borrowers deserve the same bankruptcy protections enjoyed by other consumer borrowers. The 2005 bankruptcy restrictions penalize borrowers for pursuing higher education, provide no incentive to private lenders to lend responsibly, and likely affect African American borrowers more negatively than other borrowers.  Private education debt is no different than other consumer debt; it involves private profit and deserves no privileged treatment.  I will work actively with Congressman Cohen and Senator Durbin to protect student borrowers.”

Congressman Swalwell made the following statement:

“Too many Americans are having to defer their dreams – starting a family, buying a home, launching a business – because they’re stuck in student loan debt. The Private Student Loan Bankruptcy Fairness Act will allow borrowers who have fallen on tough times to start their adult lives without fear of financial ruin, so that they are better able to pursue their dreams.”

Before changes were made to the Bankruptcy Code in 2005, only government-issued or government-guaranteed student loans were excluded from discharge in bankruptcy. This protection was intended to safeguard federal investments in higher education. Today’s bill would restore the bankruptcy law pertaining to private student loans and allow them to be discharged in bankruptcy.

Private student loans lack the critical consumer protections that come with federal student loans. For example, private lenders are not required to – and typically do not – provide any of the deferments, income-based repayment plans, cancellation rights or loan forgiveness programs that are available to federal student loan borrowers.

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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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