Statements on Introduced Bills and Joint Resolutionsby Senator Richard J. Durbin
Posted on 2013-01-23
DURBIN (for himself, Mr. Harkin, and Mr. Franken):
S. 113. A bill to amend the Truth in Lending Act and the Higher
Education Act of 1965 to require certain creditors to obtain
certifications from institutions of higher education, and for other
purposes; to the Committee on Banking, Housing, and Urban Affairs.
Mr. DURBIN. Mr. President, I rise today to reintroduce two pieces of legislation: the Know Before You Owe Act and the Fairness for Struggling Students Act. These bills will take critical steps toward addressing the student debt crisis facing America.
Every week my office is contacted by young people and their families who share with me their horror stories about student debt. Many of them are college students or graduates who are getting crushed by student loans the size of mortgages. All too often, these young people were lured into attending worthless, for-profit colleges that left them with worthless diplomas and mountains of debt. It is disgraceful. But it is not only young people facing this debt crisis, it is their parents, their siblings, even their grandparents who did them a favor by cosigning on these loans. They, too, are being held responsible when the loans go into default.
Many of these people contact my office because they don't know where to turn. Their debt loan leaves them feeling helpless. They are putting off major life decisions such as buying a home or even starting a family because of crushing student debt. We can't stand idly by any longer and ignore this reality. We have to step up and recognize that this student debt bomb is ticking away.
Student loan debt among college students surpassed $1 trillion last year. The New York Fed reports that balances of student loans have now exceeded the balances on automobile loans and credit card debt in America--student loans. That makes student loans the largest form of consumer debt outside of home mortgages.
Last year, 37 million borrowers held student loan debt. That is more than 10 percent of the population of this country. The average balance is $24,300. But, remember, that is an average. This is a massive amount of debt, and it is having a profound impact on the lives of students and their families across America.
The overall growth in student debt is troubling. The most pressing concern is what is known as private student loans. If a student goes to college, they could qualify for a government-guaranteed loan with dramatically lower interest rates with accommodations based on their employment and even some loan forgiveness. Not so when it comes to private student loans in most cases. Students who take out Federal loans receive affordable interest rates, a lot of protections and repayment options. Private student loans are totally different. Private student loans often have high variable interest rates, hefty origination fees, lack of repayment options, and, unfortunately, crushing penalties.
In 2012 the amount of outstanding private student loans exceeded $150 billion. Students are being steered into these private loans while they are still eligible for the better government loans. Why? Because somebody is making more money when they sign up for private student loans. As a result, many students are being saddled with debt they don't have to be saddled with and sometimes debt they can never repay.
The Consumer Financial Protection Bureau last year reported that at least 850,000 individual private student loans were in default amounting to more than $8 billion.
Let me tell my colleagues about one of those students. I have opened on my official Web site a place where those who have student loans and want to share their stories can come. Anna Wilcox, who is 31 years old, did. She attended the Brooks Institute of Photography, a for-profit college owned by the Career Education Corporation.
Anna Wilcox saw a TV ad one day about this so-called Brooks Institute of Photography and decided she would call and inquire. The school called her twice a day until she finally enrolled. The recruiter at the school--this Career Education Corporation School--told her that a Brooks degree would help her make $85,000 a year as a photographer. So Anna enrolled, and when she graduated in 2006, she had a debt of about $170,000, almost all of it in private student loans.
Anna was 24 years old with $170,000 in student debt from this for- profit school. With a variable interest rate that went as high as 18 percent, her balance just kept growing. Her monthly payments on her private student loan now exceed $1,000 a month. Her Federal loans she took out as well had low interest rates. She said those payments are reasonable, and she can handle them. Her parents decided to help her out and cosigned on the loans. Now her parents, in their sixties, are on the hook as well. They have to change their life plans because they wanted to help their daughter, and now they are stuck with a debt of $170,000 for a worthless diploma from a for-profit school.
Well, Anna did find a job, but the job doesn't pay anywhere near $85,000 a year. She just can't keep up with these staggering monthly loan payments. She said she would like to file for bankruptcy, clean the slate, and start over. She can't borrow money to go to a real school. She has wasted her borrowing power on these for-profit schools.
It doesn't do her any good to want to file for bankruptcy. Private student loans are not dischargeable for bankruptcy. If a person signs up as a college student for one of these student loans, it is debt that will follow that person for a lifetime. There is no way to escape it. It is something to think about long and hard when students make that decision.
Anna is very blunt and despondent. She said she made a big mistake going to the school. It was a waste. She thought she would get a better life by going to college. She didn't realize these for-profit schools by and large are a waste of money and cause debt that most students can never pay back. She has bad credit now and a mountain of debt to show for it.
So what are we going to do about it? Are we going to say: Well, Anna, you should have been a little bit smarter when you were 19 years old and sat across the desk from somebody who said: We want you as a college student. You made your mistake, girl. That is the way it works in America, and now you have to pay the price. Is that the answer? Is that the answer when these for-profit schools depend on the Federal Government and taxpayers for 85 to 95 percent of all of the revenue they take in? These for-profit schools, if we took the Federal money we send their way--if these for-profit schools were a Federal agency, it would be the ninth largest Federal agency in America. That is how much money we are pouring into these for-profit schools.
Let me just put three numbers out for people to reflect on: 12 percent of the students out of high school go to for-profit schools. We know their names. They are students who gather in Washington and come to the galleries. They know what I am talking about. Go on the Internet and try to escape an ad for a for-profit school: University of Phoenix, DeVry, Kaplan. Ring a bell? Well, I can tell my colleagues these are the biggies, but there are hundreds of them. Twelve percent of the students after high school go to for-profit schools.
For-profit schools, though, account for 25 percent of all of the Federal aid to education. They just soak it up. Students borrow and turn it over to the for-profit schools. The student is stuck with the debt. The for-profit school may never graduate you, but they have their money.
There is a third number to remember. The first is 12, the second is 25. The third number is 47. Forty-seven percent of the student loan defaults in America are students from for-profit schools, students being dragged into these schools that charge way too much for tuition and then the student either can't finish the school or gets out of school and can't find a job and they are stuck.
I tell my students back home, if you are not sure, start at a community college. It is affordable. It has a wide array of courses to be offered to you. You will learn a lot about yourself, you will learn a lot about what you want to [[Page S221]] do in school, and you will not end up sunk in debt like these for- profit schools want to do to you.
We have to do something about Anna Wilcox's plight and many others just like her.
I wish to commend especially one community college in my State, the Elgin Community College. I have been visiting that school regularly and always come home thinking: This college gets it. They have implemented a financial counseling program that goes above and beyond anything I would put into law. All of the students at Elgin Community College in Elgin, IL, must submit a monthly budget detailing all their costs when they are seeking financial aid. The student then has a mandatory, one- on-one meeting with a counselor to review the loan balance, the repayment options, and what happens if they default. This community college has implemented a workshop for students who will be graduating during the upcoming semester to discuss repayment options and give them a complete summary of every loan they have taken out.
These students are facing debt the likes of which they have never seen in their lives. They are motivated by all of the preaching they have heard from their parents, like me, saying: Go to school. Get a degree. They are ready to sign up because they want to do what they think is the right thing. They do not know that the for-profit school is worthless, they do not know that the thousands and thousands of dollars of debt will never be able to be repaid, and they do not know that debt will be with them for a lifetime. So here are some bills I am introducing to address it.
I believe students will benefit more if they have the kind of loan counseling we see at the Elgin Community College. I am joining Senator Tom Harkin of Iowa, chairman of the HELP Committee, in reintroducing the Know Before You Owe Private Student Loan Act of 2013.
The legislation requires colleges to confirm a student's enrollment status, cost of attendance, and estimated Federal financial aid assistance before any private student loan can be approved for that student. In other words, if you are eligible for the government loan, for goodness' sakes, take that first. The private student loan is much more expensive, and it is tougher to pay it back. So we want to make sure students who are eligible for government loans know that before they sign up for the private student loans. Often, students have not even applied for Federal aid before they are encouraged by some of these schools to apply for private student loans, or students have not exhausted their eligibility for Federal aid. Requiring school certification would give the school the opportunity to make students aware of Federal student aid options and the most affordable options.
The bill would also require schools to counsel the students about their loan options. Schools would be required to inform students about the differences between Federal student loans and private student loans, and they are stark and dramatic. For students who decide to take out private student loans, the bill would require lenders to provide them with quarterly up-to-date information about their balance and interest accrued. It is not one of these deals where you just keep borrowing and borrowing and borrowing, and finally when you are about to finish school--or years later--they give you the total, and you look at it and say: My goodness, I did not realize I had signed up for all of that debt.
This legislation is supported by a large coalition of educational, student, and consumer organizations and has been recommended by the Consumer Financial Protection Bureau.
The other bill I am reintroducing today is the Fairness for Struggling Students Act. This bill, cosponsored by Senators Whitehouse, Franken, Harkin, and Jack Reed, would restore the Bankruptcy Code's pre-2005 treatment of private student loans.
As I said earlier, since 2005 private student loans have enjoyed a privileged status under the Bankruptcy Code. They cannot be discharged in bankruptcy except under the most extreme circumstances. Only a few other types of debt cannot be discharged in bankruptcy--criminal fines, child support, taxes, and alimony. In contrast, nearly all types of private, unsecured debt--credit card debt, doctor bills--are dischargeable in bankruptcy, but not student loans.
There was no good reason for Congress to give such preferred treatment to these financial institutions that are peddling these private student loans. It was a provision--a sweetheart provision-- tucked into a massive bankruptcy reform bill with very little debate and even less justification. There is no evidence that private student loan borrowers were abusing the bankruptcy system before this law was changed. In fact, the private student loan market has been growing-- even before this measure was enacted into law. But the private student loan industry got a sweetheart deal out of Congress, and now we are in a situation where many students have overwhelming private student loan debt, and they cannot repay, and they cannot escape. This is devastating for those students and a drag on our overall economy.
There was an article a few months ago in the New York Times, and it talked about a grandmother who was having her Social Security check garnished because she had signed on as a cosigner of her granddaughter's student loan. Her granddaughter dropped out of college and could not pay back the loan, and now we are going after grandma's Social Security check. That is how serious this can be.
A large coalition of student, educational, civil rights, and consumer organizations support this bill. I hope we can move forward with legislation this year. It is time to restore fairness to our Bankruptcy Code when it comes to student debt.
Let me be clear: When used appropriately, student loans are valuable and important. I would not be standing here today if I had not borrowed money from the Federal Government to go to college and law school. I never could have afforded it otherwise. It was called the National Defense Education Act. If I told you the numbers that I borrowed, you would realize how old I am. But at the time, it was scary to have that much debt coming fresh out of law school. I paid it back just like I was supposed to so the next generation could take over. But what I faced, the debt I incurred to go to school and law school, does not even come close to matching what many students have to borrow in the first semester, and that, unfortunately, leads to a debt that some will be crushed with for a lifetime. In many instances, student loans help Americans get a quality higher education and the job skills they need to repay their loans and have a rewarding life and career. But, unfortunately, there are far too many Americans who have been steered into high-cost private loans that will burden them for life and prevent them from fully contributing to our economy.
It is about time we woke up to the reality of what students--millions of students--across America are facing, and their families. We have a responsibility to them over and above the profits that are being earned by for-profit schools and the financial institutions peddling these private student loans with these outrageous interest rates and terms. It is time for this Congress to listen to working families and their kids all across America to restore transparency, fairness, and common sense to private student loans. I urge my colleagues to support these bills.
Mr. President, I ask unanimous consent that the text of the bills be printed in the Record.
There being no objection, the text of the bills was ordered to be printed in the Record as follows: S. 113 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Know Before You Owe Private Student Loan Act of 2013''.
SEC. 2. AMENDMENTS TO THE TRUTH IN LENDING ACT.
(a) In General.--Section 128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)) is amended-- (1) by striking paragraph (3) and inserting the following: ``(3) Institutional certification required.-- ``(A) In general.--Except as provided in subparagraph (B), before a creditor may issue any funds with respect to an extension of credit described in this subsection, the creditor shall obtain from the relevant institution of higher education where such loan is to be used for a student, such institution's certification of-- [[Page S222]] ``(i) the enrollment status of the student; ``(ii) the student's cost of attendance at the institution as determined by the institution under part F of title IV of the Higher Education Act of 1965; and ``(iii) the difference between-- ``(I) such cost of attendance; and ``(II) the student's estimated financial assistance, including such assistance received under title IV of the Higher Education Act of 1965 and other financial assistance known to the institution, as applicable.
``(B) Exception.--Notwithstanding subparagraph (A), a creditor may issue funds with respect to an extension of credit described in this subsection without obtaining from the relevant institution of higher education such institution's certification if such institution fails to provide within 15 business days of the creditor's request for such certification-- ``(i) the requested certification; or ``(ii) notification that the institution has received the request for certification and will need additional time to comply with the certification request.
``(C) Loans disbursed without certification.--If a creditor issues funds without obtaining a certification, as described in subparagraph (B), such creditor shall report the issuance of such funds in a manner determined by the Director of the Consumer Financial Protection Bureau.''; (2) by redesignating paragraphs (9), (10), and (11) as paragraphs (10), (11), and (12), respectively; and (3) by inserting after paragraph (8) the following: ``(9) Provision of information.-- ``(A) Provision of information to students.-- ``(i) Loan statement.--A creditor that issues any funds with respect to an extension of credit described in this subsection shall send loan statements, where such loan is to be used for a student, to borrowers of such funds not less than once every 3 months during the time that such student is enrolled at an institution of higher education.
``(ii) Contents of loan statement.--Each statement described in clause (i) shall-- ``(I) report the borrower's total remaining debt to the creditor, including accrued but unpaid interest and capitalized interest; ``(II) report any debt increases since the last statement; and ``(III) list the current interest rate for each loan.
``(B) Notification of loans disbursed without certification.--On or before the date a creditor issues any funds with respect to an extension of credit described in this subsection, the creditor shall notify the relevant institution of higher education, in writing, of the amount of the extension of credit and the student on whose behalf credit is extended. The form of such written notification shall be subject to the regulations of the Consumer Financial Protection Bureau.
``(C) Annual report.--A creditor that issues funds with respect to an extension of credit described in this subsection shall prepare and submit an annual report to the Consumer Financial Protection Bureau containing the required information about private student loans to be determined by the Consumer Financial Protection Bureau, in consultation with the Secretary of Education.''.
(b) Definition of Private Education Loan.--Section 140(a)(7)(A) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)(A)) is amended-- (1) by redesignating clause (ii) as clause (iii); (2) in clause (i), by striking ``and'' after the semicolon; and (3) by adding after clause (i) the following: ``(ii) is not made, insured, or guaranteed under title VII or title VIII of the Public Health Service Act (42 U.S.C. 292 et seq. and 296 et seq.); and''.
(c) Regulations.--Not later than 365 days after the date of enactment of this Act, the Consumer Financial Protection Bureau shall issue regulations in final form to implement paragraphs (3) and (9) of section 128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)), as amended by subsection (a). Such regulations shall become effective not later than 6 months after their date of issuance.
SEC. 3. AMENDMENT TO THE HIGHER EDUCATION ACT OF 1965.
(a) Amendment to the Higher Education Act of 1965.--Section 487(a) of the Higher Education Act of 1965 (20 U.S.C. 1094(a)) is amended by striking paragraph (28) and inserting the following: ``(28)(A) The institution shall-- ``(i) upon the request of a private educational lender, acting in connection with an application initiated by a borrower for a private education loan in accordance with section 128(e)(3) of the Truth in Lending Act, provide certification to such private educational lender-- ``(I) that the student who initiated the application for the private education loan, or on whose behalf the application was initiated, is enrolled or is scheduled to enroll at the institution; ``(II) of such student's cost of attendance at the institution as determined under part F of this title; and ``(III) of the difference between-- ``(aa) the cost of attendance at the institution; and ``(bb) the student's estimated financial assistance received under this title and other assistance known to the institution, as applicable; and ``(ii) provide the certification described in clause (i), or notify the creditor that the institution has received the request for certification and will need additional time to comply with the certification request-- ``(I) within 15 business days of receipt of such certification request; and ``(II) only after the institution has completed the activities described in subparagraph (B).
``(B) The institution shall, upon receipt of a certification request described in subparagraph (A)(i), and prior to providing such certification-- ``(i) determine whether the student who initiated the application for the private education loan, or on whose behalf the application was initiated, has applied for and exhausted the Federal financial assistance available to such student under this title and inform the student accordingly; and ``(ii) provide the borrower whose loan application has prompted the certification request by a private education lender, as described in subparagraph (A)(i), with the following information and disclosures: ``(I) The availability of, and the borrower's potential eligibility for, Federal financial assistance under this title, including disclosing the terms, conditions, interest rates, and repayment options and programs of Federal student loans.
``(II) The borrower's ability to select a private educational lender of the borrower's choice.
``(III) The impact of a proposed private education loan on the borrower's potential eligibility for other financial assistance, including Federal financial assistance under this title.
``(IV) The borrower's right to accept or reject a private education loan within the 30-day period following a private educational lender's approval of a borrower's application and about a borrower's 3-day right to cancel period.
``(C) For purposes of this paragraph, the terms `private educational lender' and `private education loan' have the meanings given such terms in section 140 of the Truth in Lending Act (15 U.S.C. 1650).''.
(b) Effective Date.--The amendment made by subsection (a) shall take effect on the effective date of the regulations described in section 2(c).
SEC. 4. REPORT.
Not later than 24 months after the issuance of regulations under section 2(c), the Director of the Consumer Financial Protection Bureau and the Secretary of Education shall jointly submit to Congress a report on the compliance of institutions of higher education and private educational lenders with section 128(e)(3) of the Truth in Lending Act (15 U.S.C. 1638(e)), as amended by section 2, and section 487(a)(28) of the Higher Education Act of 1965 (20 U.S.C. 1094(a)), as amended by section 3. Such report shall include information about the degree to which specific institutions utilize certifications in effectively encouraging the exhaustion of Federal student loan eligibility and lowering student private education loan debt.
S. 114 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Fairness for Struggling Students Act of 2013''.
SEC. 2. EXCEPTIONS TO DISCHARGE.
Section 523(a)(8) of title 11, United States Code, is amended by striking ``dependents, for'' and all that follows through the end of subparagraph (B) and inserting ``dependents, for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit or made under any program funded in whole or in part by a governmental unit or an obligation to repay funds received from a governmental unit as an educational benefit, scholarship, or stipend;''.
______ By Mr. REED (for himself, Ms. Murkowski, Mr. Durbin, Ms. Collins, Mr. Udall of New Mexico, Mrs. Murray, Mr. Lautenberg, Mr. Blumenthal, Mr. Coons, Ms. Klobuchar, Ms. Stabenow, and Mr. Begich): S. 116. A bill to revise and extend provisions under the Garrett Lee Smith Memorial Act; to the Committee on Health, Education, Labor, and Pensions.