Legislation has been introduced to change bankruptcy law to treat private student loans like other consumer debt. On April 22, 2010 Congressman Steve Cohen chaired a hearing on the issue. Durbin first introduced this bill in 2007. Before bankruptcy law were changed 2005 only government issues student loans were protected in bankruptcy.

Senator Durbin
News release

CBS Money Watch’s
Student Borrowers Could Shed Loans With Proposed Law

The Chronicle of Higher Education
Lawmakers Introduce Bills to Change Student-Loan Bankruptcy Policy

Chairman Mille, Committee of Education and Labor
Time to Restore Fairness for College Loan Borrowers in Bankruptcy

National Association of Student Financial Aid Administrator
Private Student Loans to Be Discharged in Bankruptcy

Student loans are up about 50% since 2007 according to data from Equifax credit bureau according to Reuters. This will create negative long-term consequences for the housing and auto markets.

According to Dann Adams, president of Equifax’ U.S. Consumer Information Solutions

“We’ve never seen these levels of debt for student loans”

“This generation of students will be less able to buy their first home given their debt load”

Read the full story Recession spurs student lending in U.S

NPR’s Diane Rehm and her guest discuss the new system of student loans sign into law by President Obama. A must listen for anyone considering student loans or already in them. Students and parents call in with their questions and for advice. Listen online or download the podcast.

Guests
Kim Clark: U.S. News and World Report
William Wells: Director of Financial Aid at Wake Forest University.
Nina Marks: Founder of Marks Counseling Associates, and the non-profit Collegiate Directions
James Boyle: President, College Parents of America
James Boyle: President, College Parents of America

Source: NPR.org

The U.S. Supreme Court has ruled in favor of a student in a bankruptcy case involving student loans. If a lender fails to object in a timely manner to a bankruptcy plan they cannot later seek to collect debt.

The lender, United Student Aid Funds Inc., was notified repeatedly of the repayment plan in bankruptcy. It filed no objection, nor did it appeal the bankruptcy court order approving the plan.

Source: NPR Read or Listen to the Story

The Department of Education estimates it will buy $112 billion in FFEL loans from private student loan companies. Under the Federal Family Education Loan program (FFEL) the  government assumes the risk of default, and pays the financial fees for student loans through private companies.

These private loans are also costing the government more:

The CBO found that compared to the William D. Ford Federal Direct Loan program, an alternative system in which the government just directly provides students with loans, FFEL loans cost the government 10 to 20 percent more (PDF). Eliminating the unjustified subsidies and government financial backing for the FFEL program by expanding the existing direct loan program is projected to save $67 billion over the next decade.

Read the entire story at FireDogLake.com:
$112 Billion Student Loan Industry Bailout a Lesson in Corporate Welfare

New York Times reports student loan changes Obama is trying to get passed are endangered.

Democrats in the Senate, where the private student lending industry has strong allies, predicted on Wednesday night that the education bill would not be part of an expedited budget measure containing the final revisions to the health care legislation.

Mr. Obama’s plan would end a program in which the government pays private, for-profit student lending companies to make risk-free loans using taxpayer money. Instead, the proposed overhaul would broaden the government’s existing direct-lending program, saving billions of dollars that the president had proposed using to expand Pell grant scholarships for low-income students.

Read the full story here

Defaults on federal student loans spike over the past year for those students who left school in 2007. In one year the default rate increased by 83%.

61,000 students started repaying federal loans in 2007 in New Jersey. By March 11.4% had defaulted. That’s up sharply from the 6.2% from previous year. Source of data is from U.S. Department of Education.

Via NJ.com – Spike in Defaults on Student Loans

A government agency in the state of Maine is being sued by a dentist after refusing to forgive her loans after she completed her time serving an under-served area in Maine.

Dr. Kristina Lake filed the complaint in Androscoggin County Superior Court. Her attorney is Jason Dionne.
Under her agreement with Maine Dental Education Loan Program they would forgive 25% of her debt for every year she worked in an area of Maine in need of dentist. The loan program is run by Finance Authority of Maine

Read full article from Sun Journal about dentist sues state agency over student loan forgiveness.

There is an organization that is fighting hard to deal with the backwards laws regarding student loans. Today on a radio program I heard there founder speak and learned that debt collection laws do NOT apply to student loans. Learn more about their organization StudentLoanJustice.org