Ayanna Pressley Introduces New Bill to Resolve Private Student Loan Debt
|thenorthstar||Jul 23, 2019|
Congresswoman Ayanna Pressley (D-Mass.) introduced legislation aimed at helping private student loan borrowers improve their credit. The bill would establish processes similar to protections granted to delinquent or defaulted federal student loan borrowers. The Student Borrower Credit Improvement Act would establish a credit rehabilitation process for borrowers and offer other measures to help struggling borrowers repair their credit score. Student loan debt is the second highest form of consumer debt behind mortgage debt and ahead of credit card debt and auto loans. “My bill will help those borrowers who had to resort to private student loans — one of the riskiest ways to finance a college degree because these loans lack important consumer protections and repayment options,” Pressley said in a speech.
“Private student loans make up nearly 10 percent of the total outstanding student debt,” the Massachusetts Democrat said. “And unlike federal student loan borrowers, these borrowers are oftentimes left without a path to financial stability during hard times.”
Pressley said even with student loan forgiveness plans that many Democrats have suggested, borrowers with derogatory marks on their credit would still have to wait seven years to clear them. Under Pressley’s legislation, borrowers who make nine out of 10 consecutive loan payments would be eligible to have derogatory marks removed from their credit. The bill also creates some flexibility for borrowers undergoing significant financial distress, deployed servicemembers, and borrowers living in an area hit by a natural disaster and who may not able to work, Pressley said in her speech.
“My bill will help us get one step closer to establishing parity among borrowers and a credit reporting system that works for people when they need it most,” she said.
According to Skopos Labs, the bill has a 4 percent chance of being enacted. Democrats have made student loan debt one of their key issues. In June, Senator Elizabeth Warren (D-Mass.) and Representative James Clyburn (D-S.C.) introduced a bill that would eliminate up to $50,000 in student loan debt for 42 million Americans. The legislation is similar to a plan Warren released in April as part of her presidential campaign. The bicameral legislation would provide debt relief for 95 percent of student borrowers. An estimated 75 percent of student loan borrowers would have their debt completely canceled. Warren claimed the bill could help close the wealth gap for Black and Latinx people. Black families could see their wealth grow by about $15,700 and Latinx families would see wealth growth exceeding $27,000, if the bill is passed. “The student debt crisis is real and it’s crushing millions of people — especially people of color,” Warren said. “It’s time to decide: Are we going to be a country that only helps the rich and powerful get richer and more powerful, or are we going to be a country that invests in its future?”
A Federal Reserve Bank of New York report found that student loan debt reached $1.47 trillion at the end of 2018. Nearly 45 million Americans have student loan debt, with the typical monthly payment between $200 and $300 a month. Twenty percent of student borrowers were behind on payments in 2017.
A 2018 report by the Urban Institute, a progressive think tank in Washington DC, found that more than 1 million student loan borrowers go into default each year. Approximately 40 percent of borrowers are expected to default on their student loans by 2023, CNBC reported.
Kristin Blagg, a research associate at the Urban Institute, told CNBC that borrowers who default “tend to be in financial distress.” She also noted that defaulters are more likely to live in Black and Latinx neighborhoods.
Student loan borrowers default on their loans when they do not make payments for about a year and have that loan sent to a third-party collection agency. When a borrower’s student loan defaults, their credit score will drop around 60 points to an average of 550. Meanwhile, those who continue to repay their student loans tend to have scores averaging in the high 600s.
About the Author
Nicole Rojas is a breaking news writer for The North Star. She has published in various venues, including Newsweek, GlobalPost, IHS Jane’s Defence Weekly, and the Long Island Post. Nicole graduated from Boston University in 2012 with a degree in print journalism. She is an avid world traveler who recently explored Asia and Australia.