Speaking at the University of Colorado this week, President Obama outlines a new "Pay as you Earn" plan aimed at assisting certain categories of student borrowers to pay back approved loans at a lower monthly rate as well as expedite the payment timeframe. Through executive order President Obama promised to reduce payments on monthly student loans to ten percent of discretionary income and reduce the balance of payment on student loans to 20 years. Senator Dick Durbin (D-IL), a longtime advocate of student loan reform, found the Obama plan a step in the right direction, but also noted, "For a growing number of students, this help may not be enough."
President Obama understands the reach of the student loan problem for both students as well as for its negative impact on economic recovery and growth. He stated, "Over the past three decades, the cost of college has nearly tripled. That is forcing you, forcing students, to take out more loans and rack up more debt. Last year, graduates who took out loans left college owing an average of $24,000. Student loan debt has now surpassed credit card debt, for the first time ever. Living with that kind of debt means making some pretty tough choices when you are first starting out."
Durbin views the President’s plan an important first step that does not go far enough. According to Senator Durbin, “For a growing number of students this help may not be enough Students in some for profit schools are increasingly burdened with a massive debt and letter to show for their education. Meaningful accreditation standards and safe guards for taxpayer investments need to be put in place to ensure students are getting the best education possible and federal funds are being used fairly and responsibly.”
Durbin places an emphasis students attending for profit schools who turn to private loans for assistance. He states, “As prices sky rocket, students especially those at for profit schools, who find themselves unable to get enough government aid to pay the high tuition, are turning to private loans to fee the gap. These loans need to be carefully regulated to protect students and their families from unreasonable terms and rates.”(www.durbin.senate.gov, October 27, 2011)
Senator Durbin and several other lawmakers, including Rep. Steve Cohen (D-Tenn.) and Senator Al Franken (D-MN), call for reforms of for profit schools. “In February 2011, Senator Durbin called on leaders of more than 300 colleges and universities to become better stewards of taxpayer dollars by doing more to insure investments are matched with student achievement.” Senator Durbin urged schools to make sure that students are completing degrees, and gaining useful knowledge. He went on to push for better accreditation standards.
Unlike President Obama’s plan Senator Durbin’s legislative proposals advocate on behalf of students who have privately issued loans. Students who are struggling to pay off private student loans provided by large bank or Sallie Mae for example, have fewer protections and often have variable interest rates in their loans. Senators Durbin, Franken and Rep. Cohen favor developing reforms that create an opportunity for students with private student loan debt to declare bankruptcy.
Durbin’s “Fairness for Struggling Students Act”focuses on lending treatments by privately issued student loans in bankruptcy the same as other types of private debt. Before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy. This protection has been in place since 1978 and was intended to safeguard federal investments in higher education. Durbin’s bill would respite the bankruptcy law as it pertains to private student loans, to the language that was in place before 2005 so that privately issued student loans will once again be dischargeable in bankruptcy.
According to Rep. Steve Cohen, “the 2005 Bankruptcy reform Bill, which stripped students of the right to declare bankruptcy on private loans. The industry is giving out loans to people that may not be as creditworthy as they should be because they know they can’t bankrupt them. You ought to be able to discharge those loans through bankruptcy. Why should private loans be different then debt you can accumulate with a credit card, or at a casino. There is just no good reason for it…It was really a bad bill if you were an average or even a middle class American.
This was done for the industry, not the students.