Fix law regulating private student loans

Thru Jun 14, 2007

For some private student loans, which represent a rapidly growing segment of student borrowing, the interest rates and late fees can be worse than those offered on credit cards. Most students still manage to pay them on time, but those who don't can find themselves swimming in ever-increasing debt. And unlike credit cards debts, the student loan debts since 2005 cannot be discharged if the student declares bankruptcy.

The problems of students who fall behind in their student loan payments were highlighted in stories in the Chicago Sun-Times last month. The matter also caught the attention of Sen. Dick Durbin (D-Ill.), who has proposed legislation that would once again make private student debts subject to the nation's bankruptcy laws.

It's an easy but significant fix. As he points out, private student loans are the fastest-growing and most profitable sector of the student loan industry. They now account for 20 percent of total student borrowing, up from 5 percent just a decade ago. The 2005 change has contributed to the increase, Durbin believes, because there is no risk for lenders to make loans to students who can't afford them, or who are attending schools with low graduation rates and even lower job placement rates. He also notes that there is no government-imposed loan limit and no public regulation of the loans.

Government issued or guaranteed student loans have been exempt from bankruptcy provisions since 1978. You can make a case for the exemption: Those loans involve either state or federal taxpayer dollars, and they already come with provisions to help borrowers who run into trouble due to such things as disability, economic hardship and unemployment.

It's hard to make such a case for private loans, and it was a mistake for Congress to exempt them in 2005. "Private student loans are incredible money-makers for loan companies, and students end up saddled with sky-high interest rates and mountains of debt," Durbin said. "I don't think many 17- or 18-year-old students realize the long-term impact of their loan decisions. Some of these private student loan repayment schedules -- with double-digit interest rates -- can follow a student borrower from graduation to the grave."

Bankruptcy should always be a last resort. But even if you have no sympathy for a student who fails to read the fine print or irresponsibly takes on more than he or she can handle, there's no persuasive justification for treating private student lenders differently from any other type of creditor. All should be treated the same under the nation's bankruptcy laws. Congress should move quickly to adopt Durbin's proposal.

Source:
http://www.suntimes.com/news/commentary/424934,CST-EDT-edits13a.article