Peters, Capito Reintroduce Bipartisan Student Loan Rehabilitation Bill
Legislation Would Allow Private Student Loan Borrowers to Remove Default from Credit History after Series of Payments
WASHINGTON, DC – U.S. Senators Gary Peters (MI) and Shelley Moore Capito (WV) today reintroduced bipartisan legislation to help private student loan borrowers who default on their loans. The Federal Adjustment in Reporting (FAIR) Student Credit Act would allow a borrower who has successfully completed a series of on-time payments to remove the student loan default from their credit report. Unlike federal student loans, there is currently no opportunity to rehabilitate private student loans, and private lenders may only request to delete information from a credit file if it was reported inaccurately.
“Defaulting on a private student loan can have long-term economic effects, making it harder for a borrower to find a job, rent an apartment, or buy a car,” said Senator Peters. “This commonsense legislation will make sure borrowers who defaulted on their private student loans have the same opportunity as individuals with public loans to get back on their feet financially and help build a strong, vibrant economy in Michigan and across the country.”
“It is essential students are able to recover from defaulted student loans without permanently harming their financial future,” Senator Capito said. “The FAIR Student Credit Act will provide students with private loans the same opportunity for rehabilitation that is already available to graduates with federal loans. I am proud to join with Senator Peters to reintroduce this important bipartisan bill that will make a difference in the lives of students in West Virginia and across the country.”
The FAIR Student Credit Act would expand the loan rehabilitation program by giving private lenders the flexibility to make it easier for borrowers to improve their credit standing. Under current law, federal loans may be rehabilitated one time and borrowers can repair their credit, while private lenders do not have the ability to remove negative credit information on borrowers who participate in loan rehabilitation programs. Peters and Capito previously introduced this bill in the 114th Congress.
There are approximately $9.9 billion in total private student loans across the country, and according to the most recent statistics from the Consumers Financial Protection Bureau, there are more than 850,000 private student loans in default. A bad credit report can negatively impact a borrower’s attempts to gain employment, rent an apartment or purchase an automobile for years. This debt is harming our economic recovery, negatively impacting retirement savings, household spending and the demand for mortgage credit.
According to the U.S. Department of Education, 1.1 million federal student loan borrowers defaulted on their loans for the first time in 2016, and the total amount of defaulted student debt increased by 14% last year. Approximately 90 percent of higher education loans are public, which means those borrowers already have access to loan rehabilitation. The FAIR Student Credit Act would create the opportunity for parity between the treatment of federal and private loan borrowers.
“The FAIR Student Credit Act offers private student loan borrowers who have managed to get back on track with their student loan payments the opportunity to have a credit report that reflects their hard work. The Act presents servicers with a more sustainable business model by encouraging rehabilitation plans and it gives students the tools to shape their own financial future,” said Ashley Harrington, Counsel at the Center for Responsible Lending.
“Having customers with good credit is not only good for lenders, it’s good for Michigan’s economy,” said David Adams, CEO of the Michigan Credit Union League. “When we can lend to more customers with good credit, then more Michiganders are able to buy a home, get a new car, start a business or save for retirement. It’s great to see Senator Peters taking the lead on this important legislation to help people get back on strong financial footing after default for future borrowing and repayment.”
