Larsen Bill Would Protect Grieving Student Borrowers From Harmful “Auto-Defaults”
Local Universities and National Organizations Support Bill
WASHINGTON, D.C.—Students with private education loans would be protected from “auto-defaults” when a loan cosigner, often a parent or grandparent, dies or files for bankruptcy if Congress passes a bill introduced today by Rep. Rick Larsen, WA-02.
In a report last year, the Consumer Financial Protection Bureau identified significant issues facing private student loan borrowers. As of 2011, about 90 percent of private student loans had cosigners. Many loan contracts have clauses that allow the loan to be accelerated into default upon death or bankruptcy of a cosigner, often a parent or grandparent, even when students are making loan payments on time.
Larsen’s bill, the Bereaved Borrowers’ Bill of Rights Act of 2015, is designed to protect grieving students and students facing family hardship from automatically defaulting on their private student loans and to get better access to information about cosigner release requirements. The bill also prohibits lenders from reporting an auto-default as a result of cosigner death or bankruptcy to credit reporting companies and stops these companies from including this information on their reports.
“Circumstances out of students’ control should not throw their financial and educational futures into question. When students lose a loved one, the last thing they should have to worry about is defaulting on loans that they are paying on time. That is why I introduced a bill to make sure private lenders treat student borrowers fairly, and to protect students from marred credit records that could haunt them for years by no fault of their own.
“Today’s students are juggling a lot of demands, from rising tuition costs to a highly competitive job market. My bill makes sure that unfair and harmful ‘auto-defaults’ are not on this list,” Larsen said.
Local universities are getting behind the bill, including Western Washington University, the University of Washington, and Washington State University.
Steve Swan, Vice President for University Relations and Community Development at Western Washington University said, “Western greatly appreciates Congressman Larsen’s ongoing efforts to protect students through the Bereaved Borrower’s Bill of Rights. This bill is about respect and decency in protecting students who are dependent on private loans and protects them when they are caught in a life-altering experience they have no control over. The unexpected loss of a family member who in most cases is a cosigner should not keep students from achieving their dreams and aspirations through a higher education experience. The threat of having their private loans reported as in default in bereavement or family crisis is irresponsible and wrong.”
Kay Lewis, Assistant Vice Provost for Enrollment, Executive Director of Financial Aid and Scholarships at the University of Washington said, "The Bereaved Borrowers’ Bill of Rights protects students with private loans when their cosigner dies or files for bankruptcy. Cosigners are usually close family members and students should not have their loans reported as in default during a time of family crisis or bereavement. I support this bill as a way to add reasonableness, transparency and most importantly, kindness to private student loan repayment. The Bereaved Borrowers’ Bill of Rights follows the old adage that it is important not to kick someone when they are down.”
Brian Dixon, Assistant Vice President for the Office of Student Financial Services at Washington State University said, "The Bereaved Borrowers Bill of Rights address a critical gap in student borrower protection. It is unfortunate when students have a cosigner pass away. Oftentimes this is their primary financial supporter for funding their educational pursuits. WSU appreciates the leadership of Congressmen Larsen. This bill significantly reduces financial barriers to complete educational creditentials for students in this unfortunate situation and who lack the means for immediate repayment of their private loans."
National organizations also have endorsed the bill as an important fix to a problem facing private student loan borrowers. The American Association of Community Colleges and the American Council on Education both support the bill.
In a letter of support, ACE President Molly Corbett Broad said, “This legislation would meaningfully address problems the Consumer Financial Protection Bureau has identified with how lenders treat co-signers of private education loans. By providing transparency to the release process and giving borrowers real options in the event of a death, the Bereaved Borrowers' Bill of Rights Act of 2015 will help borrowers understand and meet their obligations while ensuring that they are not unduly harmed by circumstances beyond their control.”
Larsen first introduced the Act during the 113th Congress.