Student Loan Changes to be Considered in Senate Bank Deregulation Bill

The U.S. Senate this week is considering a wide-ranging deregulation bill aimed at rolling back strict banking rules imposed by the 2010 Dodd-Frank law—a measure passed in the wake of the 2008 financial crisis. On Wednesday, the Senate Banking Committee introduced a set of proposed changes to the bill, which includes several new provisions affecting private student loans, Politico reported.

The additions, billed as new borrower protections, would ban automatic defaults for private student loans and allow private lenders to offer loan rehabilitation benefits. The proposed amendment would prohibit private lenders from automatically placing borrowers in default or accelerating their payments solely because their cosigner died or declared bankruptcy. The provision would only apply to new private student loans, not existing loans or consolidation loans. Additionally, it would not extend to borrowers whose cosigners are their spouse.

The amendment would also allow private lenders to offer defaulted borrowers the benefit of removing the default from their credit report if they make a certain number of on-time monthly payments determined by the lender. Federal student loans currently offer a similar loan rehabilitation benefit, though the federal program allows borrowers to remove the default from their credit report after nine monthly payments that are "reasonable" and "affordable," Politico reported.

A group of Senate Democrats introduced a separate amendment that would make several changes to private student loans and student loan servicing. The measure—sponsored by Sens. Dick Durbin (D-IL), Jack Reed (D-RI), Elizabeth Warren (D-MA), Patty Murray (D-WA), Sherrod Brown (D-OH), and Richard Blumenthal (D-CT)—would allow private loans to be discharged in bankruptcy and eliminate wage garnishment for low-income borrowers who are in default, among other things.

The Senate is expected to take up the bank deregulation legislation as early as Tuesday. However, it is still unclear which amendments, if any, will be considered on the Senate floor, according to Politico.


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