If a bill that overhauls Dodd-Frank regulations is signed into law, student loan borrowers could see some changes.
Legislation that would overhaul the Dodd-Frank Act heads to the House of Representatives for a vote this week. If the bill passes, it will head to President Trump’s desk to be signed into law.
The Dodd-Frank Wall Street Reform and Consumer Protection Act originally passed in 2010. It came on the heels of the 2008 recession and imposed stricter regulations on the banking industry, impacting mortgages, credit cards, and more.
The provisions of this new, overhauling bill would affect the same industries, impacting how consumers take out mortgages and pay their credit cards, but it could also impact student loans, CNBC reported.
In March, the Senate’s Banking, Housing, and Urban Affairs Committee added two provisions that could help private student loan borrowers.
First, lenders wouldn’t be able to declare default or accelerate repayment if a cosigner on the loan files for bankruptcy or dies. Likewise, if the borrower dies, the lender wouldn’t be able to hold a cosigner responsible for any remaining debt. This change in particular would be huge. Currently, when a borrower dies, private lenders can call for the full remaining balance of the loan from the cosigner immediately.
The other provision would establish a rehabilitation program for private student loans. These programs would allow a defaulted borrower to resume making consistent payments to their loan, helping he or she get out of default. Additionally, the borrower would be able to request the original default to be removed from a credit report. This would allow borrowers to get back on track with their loans without permanently damaging their credit. Currently, only federal student loans can be rehabilitated this way.
Senator Shelley Moore Capito, who introduced both provisions, said that it is important to give borrowers an opportunity “to recover from defaulted student loans without permanently harming their financial future.”
Both provisions would apply only to borrowers who take out private student loans 180 days or more after the bill is passed.
The vast majority of student loans in the U.S. are federal loans, so many student loan borrowers (those with only federal loans) would not be affected by the bill’s changes. Most borrowers prefer federal loans because they offer better interest rates and more flexible repayment terms than private student loans.
However, current outstanding private loans total $11.6 billion. These two new provisions will offer borrowers with private loans greater protections and more flexibility in their repayment options.
The bill was already approved by the Senate in March. Due to wide bipartisan support, it is expected to be approved by the House early this week.