In an attempt to tackle the private student loan crisis, Senator Dick Durbin (D-Ill.) introduced the Student Loan Borrowers' Bill of Rights at a press conference in Chicago on December 3, that would provide basic protections for students flirting with default on their loans. The bill is co-sponsored by Senators Elizabeth Warren (D-Mass.) and Barbara Boxer (D-Calif.).
Private loans have no limits on>interest rates and few repayment plans, unlike federal loans, for which income based repayment is available to borrowers.
Among the bill's protections:
- The right to have options such as alternative payment plans to avoid default.
- The right to be informed about key terms and conditions of the loan and any repayment options to ensure changing plans won't cost more.
- The right to know your loan's servicer and who to reach out to when there is a problem.
- The right to consistency when it comes to how monthly payments are applied. Lenders and servicers should also honor promotions and promises that are advertised or offered.
- The right to grace periods when loans are transferred between servicers or in the case of debt cancellation when the borrower dies or becomes disabled.
- The right to accountability, including timely resolution of errors and certification of private loans.
The bill originated with one of Durbin's constituents. Hannah Moore, a 32-year-old Chicago resident graduated from the Harrington College of Design with a two-year degree -- and about $90,000 in student loans. She said she routinely made $800 monthly payments for over three years. In 2008, Sallie Mae allowed her to spread her payments out over 25 years. But she was making lower payments while the interest continued to capitalize and were added to her principal balance.
Moore said she made regular payments of $800 a month for over three years, that she was never late an often paid early, but the compounding interest drove payments to $1,700 per month. Her current balance is about $155,000.