Tennessee Ledger - Cohen Pushes for Student Loan Bankruptcy Protection

News Article

By Sam Stockard

U.S. Rep. Steve Cohen sponsored legislation in the Tennessee Senate that led to creation of the HOPE Scholarship, which provides four-year college students with $4,000 a year for their studies.

Yet, it isn't coming close to covering the cost of a university degree, especially with tuition and fees nearly doubling over the last decade as state funding for higher education has stagnated.

Consequently, more than half of Tennessee students are graduating with some $25,000 in student loans, putting a burden on their finances before they can become entrenched in a career, if they're fortunate enough to find one in their field of study.

Many students find themselves unable to pay their debt, even though they can receive a deferment until they land a good job, and that often leads to default and potential bankruptcy.

In May 2014, Cohen, a Memphis Democrat, joined several U.S. senators and representatives in urging Secretary of Education Arne Duncan to "bring more fairness to struggling students by establishing clear standards of eligibility for "undue hardship' discharge of federal student loans in bankruptcy."

The idea is to create more consistency in how Department of Education contractors handle claims for undue hardships, allowing the federal government to focus efforts on cases in which it is more likely to recover loans.

Contractors such as Educational Credit Management Corporation aggressively challenge the efforts of debtors to show undue hardship in having their student loans discharged in bankruptcy, the representatives and senators say.

"While we recognize the Department's prerogative to fairly collect on student loan debts owed to it, we do not find it sensible or cost-effective for the Department or its contractors to engage in lengthy legal challenges and appeals against bankrupt student loan borrowers who have demonstrated a clear and legitimate inability to repay their loans," a joint statement from the congressional group reads.

In addition, Cohen is lead sponsor of a bill designed to restore fairness in student lending by ensuring privately issued student loans are treated the same as other private debt in bankruptcy cases.

Cohen says the law was changed unjustifiably in 2005, and he wants to amend the U.S. Bankruptcy Code to allow debt from private loans made by for-profit lenders to be discharged, as it was before 2005.

"People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin," Cohen says

"The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected."

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