A new Senate bill is intended to end a couple of private student loan practices that have harmed borrowers.
The American student loan crisis is garnering the attention of lawmakers, and now there are two new proposals in the Senate banking bill to ease the pressure debt is putting on student loan borrowers, according to CNBC.
The latest proposals aim to mitigate the negative effect of student loans would tackle how private student loan lenders approach the issue of a cosigner’s death or bankruptcy, as well as how defaults would be reported on the borrower's credit report.
Numerous studies have pointed toward the looming crisis student loan debt could cause on the economy. A Brookings Institution study in 2017 suggested that up to 40 percent of the 2004 cohort of student loan borrowers could default on their loans by 2023.
Student loan borrowers tend to delay major life decisions, including homebuying and starting a family. These postponed decisions alone put pressure on the U.S. economy.
Even the Federal Reserve is on board when it comes to the negative effects of student loans on economic growth. Student loans hit almost $1.45 trillion at the end of 2017, and 11 percent of borrowers were 90 days or more delinquent, according to the Federal Reserve Bank of New York.
Federal Reserve Chair Jerome Powell, when discussing the student loan crisis in early March, acknowledged that the student loan debt crisis is primarily an issue for Congress, and said it could become an economic question.
"You do stand to see longer-term negative effects on people who can't pay off their student loans," Powell said. "It hurts their credit rating, it impacts the entire half of their economic life."
The Bill’s Proposed Changes to Private Student Loans
The first proposal aims to make it harder for a lender to declare default or accelerate the payment of a private loan when a cosigner dies or declares bankruptcy. Also, in the event of the borrower dying, the private loan lender would have to release the cosigner from the debt.
The bill also proposes a rehabilitation program, which would include a one-time removal of a default from the lender’s credit report – similar to a current option for federal student loans. A loan rehabilitation program would require the borrower to demonstrate the ability to repay the loan. It would be a one-time option.
The new rules would only apply to private student loan agreements made a minimum of 180 days after the bill would be passed. A student loan expert told CNBC that because the banking bill is bipartisan, it has a good chance of passing.
For Students Who Currently Have Private Student Loans
If this bill becomes a law as it’s currently written, it wouldn’t apply to current borrowers. But it’s still possible to negotiate with a lender in times of hardship.
Student loan expert Mark Kantrowitz told CNBC that although private student loan lenders aren’t currently required to provide rehabilitation programs, it is possible to strike such a deal with a lender.
Borrowers might also be able to apply for forbearance for temporary relief. And depending on one’s creditworthiness, another option might be to refinance private student loans to reduce the monthly payment.
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