Private Loans Plague Students and Recent Grads - New Bill Offers Relief

October 05, 2012 (Press-News.org) Private Loans Plague Students and Recent Grads - New Bill Offers Relief

Go to school, get a good job -- there was a time when this piece of advice seemed foolproof. Unfortunately, in these tough economic times more and more college students are opting to take out high-interest private loans to pay for their education, and recent graduates are struggling to find employment that can help them pay down their student loan debt.

These graduates often face a more difficult financial future than previous generations since they often have to repay pricey private student loans taken out to fund their education instead of just relying on federal loans.

Private loans and federal loans have many differences. Federal loans often provide students with more protection, such as:
-Fixed interest rates
-Deferment options
-Manageable repayment plans

These protections are not commonly found with loans from private lenders. Instead, private loans can have variable interest rates, with some that jump as high as 18 percent. In addition, private loans are often ineligible for forgiveness or repayment options.

Some legislators are attempting to change current law in order to help students avoid financial struggles tied to private education loans. A number of senators support this change and are backing two pieces of legislation to help current students and recent grads fight for a more stable financial future.

Proposed Legislation on Student Loan Debt

The first piece of legislation, The Know Before You Owe Act, aims to help students make the right decision when taking out student loans by providing students with the power to proactively control their financial futures.

The Act would require colleges to guide students on available federal loans prior to accepting private loans. It also would require colleges to discuss the terms of the loans with the students to help ensure that they are aware of the ultimate cost of a private loan, going over the difference in interest rates and difficulty in adjusting repayment options in the future.

The second proposal, the Fairness for Struggling Students Act, aims to help students who already find themselves burdened with private educational loan debt. These loans often do not qualify for relief in bankruptcy court. Instead, they tend to be treated in a manner similar to child-support payments and overdue taxes.

Private educational loans were not always treated this way. Prior to 2005, bankruptcy relief was available for private educational loans. However, in 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act removed this option. The Fairness for Struggling Students Act proposes to reinstate these protections by allowing private educational loans to qualify for discharge in bankruptcy.

If passed, this act would allow bankruptcy courts to treat private educational loans like other forms of private debt, which may be discharged.

Legislators are not the only ones pushing for this change. The Consumer Financial Protection Bureau also calls for these private loans to qualify for bankruptcy relief.

Determining the best course of action concerning educational debt can be difficult. Even if this bill does not pass, there are circumstances when educational loans may be discharged in bankruptcy court. If you or a loved one is struggling financially with educational loans, it is important to discuss your legal options with an experienced bankruptcy attorney to determine the best course of action for you.

Article provided by Peoples Law Group
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