[WASHINGTON, D.C.] – U.S. Senator Dick Durbin (D-IL) applauded the House Judiciary Subcommittee on Commercial and Administrative Law for approving a bill that will restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt. Earlier this year Durbin introduced identical legislation in the Senate – the Fairness for Struggling Students Act (S. 3219) – with Senators Sheldon Whitehouse (D-RI) and Al Franken (D-MN). U.S. Representatives Steve Cohen (D-TN) and Danny Davis (D-IL) sponsored the House version.

“For the first time in history, Americans owe more on their student loans than on their credit cards,” said Durbin who first introduced this legislation in June 2007. “With virtually no risk, loan companies have seen record profits on high interest rate private student loans that have left students with crushing debt upon graduation. I commend the House for acting on this bill that will restore fairness in student lending, by placing student loan companies in the same position as virtually all other private lenders. I hope the Senate will act soon.”

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. Today’s bill would restore 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.

For the past decade, private student loans have been the fastest growing and most profitable part of the student loan industry. According to the College Board, roughly 15% of total student borrowing is in private student loans. Ten years ago, only 5% of total education loan volume was in private loans. The interest rates and fees on private loans can be as onerous as credit cards. There are reports of private loans with interest rates of at least 15% and higher rates are not unheard of. This can place a tremendous burden on student borrowers with private loans and unlike federal student loans, there is no government-imposed loan limit on private loans and no public regulation over the terms and cost of these loans.

Private loans involve only private profit and do not have the protections that government borrowers enjoy, including caps on interest rates, flexible repayment options, and limited cancellation rights. There are very few types of debts that the bankruptcy law subjects to a different standard, allowing for discharge in only the most extreme circumstances. For example, the bankruptcy code makes it especially difficult for people to escape child support responsibilities, overdue taxes, and criminal fines. Privately issued student loans should not be on that list.

Durbin’s legislation is supported by the Institute for College Access and Success (TICAS) and the National Consumer Law Center.