Although Private Student Loans only make up $150 billion of the $1 trillion in student debt (15 percent), it still affects a much larger percent of those with Federal Student Loans. Since federal loans only cover tuition and fees, many students with federal loans still have to take out private loans to cover expenses such as off-campus housing and other expenses. Private loans are also used for tuition as non-accredited schools. Studies completed this year show that half of all student loans are now in default or deferred status.
Introduction of bill HR 532
Of the drawbacks to using private student loans to pay for college or technical schools, the inability to discharge them through bankruptcy proceedings is probably the biggest. While it is possible to come to a private agreement with the lender, no court in the U.S. currently has jurisdiction over these debts. There is legislation now making it way through Congress that could change that though.
U.S. Congressmen Danny Davis (D-IL) and Steve Cohen (D-TN) introduced bill HR 532 on February 6, 2013. This changes the current bankruptcy rules to allow judges to handle private student loans just like any other form of debt through a lending institution. Other legislation similar to HR 532 has been submitted previously, but never at a time when so many graduates over the last five years have had to struggle in a just now recovering job market. Because of this struggle that affects so many students and their parents; public support for changing the bankruptcy rules has never been higher. As of May 2013, this bill has 14 sponsors in the House of Representatives.
Will this really help?
Not every government agency believes this is the solution though. The Consumer Financial Protection Bureau (CFPB) believes that the current student debt problems could easily become another debt crisis similar to what happened with sub prime mortgages in 2008. A report they issued in July 2012 believes that changing the law to allow student loans to be discharged through bankruptcy would be the final straw to break this particular camel’s back.
They also condemned a solution from Campus Progress made earlier in February. This idea was that the government would purchase private student loans in order to lower interest rates and allow for repayment options, such as the Income Based Repayment, that is offered in federal student loan programs. The CFRB pointed out that this would only reward lenders who made the riskiest loans and provide no incentive to those lenders who behaved in a responsible manner to continue doing so.
One positive suggestion from the CFRB was to address the issue of rehabilitating the credit of those borrowers who did finally repay their loans despite doing so late and with penalties. The program currently used for rehabilitating credit for federal student loan holders is a viable one and would adjust to helping those with private loans very easily.
The Student Loan Fairness Act
One other option might be passing the Student Loan Fairness Act. This is legislation introduced by Congresswoman Karen Bass (D-CA) in March 2013. It does not provide for discharge through bankruptcy, but instead uses the 10 – 10 model similar to many federal student loan programs. That is capping the monthly payments at 10 percent of the borrower’s discretionary income and after 10 years (120 months) of qualified payments, the remaining debt may be forgiven with not even taxes due on it. For those students who are currently unemployed, they would be able to defer payment without penalty until they do find work.
The Student Loan Fairness Act would also allow for private student loans to be converted into federal loans with all of the benefits that would entail. To accomplish this, borrowers would have had to be qualified for a federal student loan at the time of they took out their private loan. Their current gross income would also have to be less than the total amount of private debt they still owe on that loan.
No matter what solutions are eventually adopted, $1 trillion in student debt has to be addressed. Even if lawmakers can only work out solutions for the $150 billion in private loans, it will provide much needed relief for many graduates and their parents, who are struggling to find full-time employment, pay their bills and continue pursuing their own personal American Dream. Allowing borrowers to take advantage of Private Student Loan Forgiveness can go a long way in solving this crisis.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.