Legislation unveiled by Sen. Tom Harkin (D-Iowa) Wednesday as part of a larger higher education package would allow private student loans to be discharged in bankruptcy.
The Higher Education Affordability Act, introduced by Harkin as chair of the Senate Health, Education, Labor & Pension Committee, includes a host of items that aim to address college costs and debt. The entire proposal out of the Senate is largely a Democratic wish list for reauthorizing the Higher Education Act.
"The upcoming reauthorization of the Higher Education Act, which the HELP Committee has been focused on for nearly a year, presents an historic opportunity for Congress to focus attention on college affordability and accountability, help borrowers with existing student debt, and increase transparency so students and families can make informed decisions," Harkin said in a statement. "This proposal is based on recommendations the Committee has received through its series of bipartisan hearings."
Reforming the policy around bankruptcy and private student loans has been something of a pet project for Sen. Dick Durbin (D-Ill.), who has pushed the idea for the past few years with little success.
A House Republican proposal for the reauthorization of the Higher Education Act, according to a white paper from the Education & Workforce Committee, is largely silent on private student loans, apart from hints at better financial counseling for potential borrowers.
Private student loans make up about 15 percent of the overall education debt, according to the Wall Street Journal. The major players in the industry, which has shrunk since the Great Recession, are Wells Fargo, Sallie Mae and Discover Student Loans.
Unlike federal loans -- many of which now carry options like income-based repayment, loan forgiveness and extended deferments -- private student debt has no required protections for struggling borrowers. Payments and interest rates for private loans are frequently far higher than those the government demands from graduates, and banks usually ask for a co-signer on private student loans.
Under Harkin's proposal, federal loans would still not be eligible for bankruptcy.
Private student loan borrowers typically carry more debt than the national average, according to the Consumer Financial Protection Bureau.
Consumer advocates have mocked the rule that bars bankruptcy for private student debt as a "special circle of bankruptcy hell," and the liberal Center for American Progress has floated ideas for making certain student loans eligible for bankruptcy.
Efforts by President Barack Obama to address existing student loans has mostly ignored those who have debt from private lenders.
Harkin's office is soliciting feedback on the proposal via email at HEAA2014@help.senate.gov.