Larsen Introduces Bill to Protect Bereaved Student Borrowers
WASHINGTON—Rep. Rick Larsen, WA-02, today introduced a bill to protect private student loan borrowers from “auto-defaults” when a loan cosigner, often a parent or grandparent, dies or files for bankruptcy.
In its April 2014 “mid-year update on student loan complaints,” 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 2014, is designed to protect grieving students and students facing family hardship from auto-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.
“The last thing students grieving the death of a loved one should have to deal with is default on a loan they are paying on time,” Larsen said. “One of my top goals is to break down barriers for all people to fully participate in our economy and democracy. But full participation isn’t happening when students who have been making timely loan payments are suddenly kicked into default for reasons not in their power.”
“Students who have invested in their education by taking out loans and pursuing degrees should be treated fairly every step of the way, including by private lenders. And students should not be hit with marred credit records that could haunt them for years because of circumstances they can’t control.
“My bill gives students time to figure out a path forward with their loans and it requires private loan companies to be more transparent. Today’s students are juggling a lot, 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 and the University of Washington.
Steve Swan, Vice President for University Relations and Community Development at Western Washington University said, “Western is proud to support the efforts of Congressman Larsen and the cosponsors to protect students who are caught in a situation they have no control over. The Bereaved Borrowers’ Bill of Rights is about respect and decency in protecting students and allows them to keep their focus on 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 this about the bill: “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. The University supports this bill as a way to add reasonableness, transparency and compassion to private student loan repayment, especially for those who are responsibly managing their repayments. It is definitely the right thing to do.”
The bill has eight original cosponsors, including Reps. Eleanor Holmes Norton (D-DC), Niki Tsongas (D-MA), Suzan DelBene (D-WA), Pedro Pierluisi, Denny Heck (D-WA), André Carson (D-IN), William Enyart (D-IL), Peter Welch (D-VT), and James Moran (D-VA).
A fact sheet on the bill can be found here.
Full text of the bill can be found here.
UPDATE: Read what leading education groups have to say about the bill here.