by: Henry Meier
Is the Bankruptcy Code to blame for difficulties students experience modifying their private student loan obligations? That is the implicit question posed by the CFPB in its annual report analyzing the student loan industry. According to the report, which summarizes data from complaints received by the CFPB over the previous year, students seeking repayment options for private student loans are facing many of the same obstacles homeowners face after falling behind on their mortgages.
According to the report, since the Bureau began accepting private student loan complaints in 2012, the most common complaint comes from borrowers seeking to avoid default when they face financial hardship. According to the Bureau, its findings suggest that lenders and servicers “have yet to address the need for loan workout in a fulsome manner.”
What would the CFPB do? In 2005, one of the changes made to the bankruptcy code was to make private student loans non-dischargeable in bankruptcy. At the time of this change, similar protections had already been granted to federally subsidized student loans. The CFPB is recommending that Congress revisit the PSL exemption “to determine whether the special bankruptcy protection afforded to lenders should be limited to those who offer certain loan modification options.” Remember, the CFPB has already put in place a regulatory framework mandating that lenders work in good faith with homeowners who are struggling to make their mortgage payments.continue reading »