July 31, 2014

Sen. Warren Questions Lack Of Private Student Loan Relief Options

Senator Asks: If Student Borrowers Can't Discharge Loans in Bankruptcy and Banks Won't Offer Relief, What Are Students Supposed to Do?

Video of Sen. Warren's Q&A is available here

WASHINGTON, DC - At a Senate Banking Committee hearing today, United States Senator Elizabeth Warren questioned a top banking lobbyist about the lack of private student loan relief options available to struggling borrowers.

Senator Warren explained that in 2005, the banks successfully lobbied Congress to end bankruptcy protections for private student loans. "The banks...get the benefits of the bankruptcy exclusion and don't offer much of anything in exchange to help struggling borrowers," she said.

Last year, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the Federal Reserve (Fed) encouraged banks to offer student loan modifications to struggling borrowers, but the Consumer Financial Protection Bureau (CFPB) indicates such assistance has not been made widely available.

"If struggling borrowers can't discharge their loans in bankruptcy, and if your banks won't give them loan modifications...what are they supposed to do?" Senator Warren asked Richard Hunt, President and CEO of the Consumer Bankers Association.

The Senator highlighted a story published by CNNMoney this week about a couple who cosigned private student loans for their daughter and were forced to take on $100,000 of the daughter's debt when she died. The family has been unable to get sufficient assistance from their lenders to help manage the debt.

"There really is no substitute for bankruptcy protection. But the banks went out and lobbied to make sure that they were going to be exempt from the bankruptcy laws, and now they won't even provide the modest relief that is provided on federal loans for people who end up in terrible financial circumstances. I think this is wrong," said Senator Warren.

Watch the full Q&A here.