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Students pull a mock ‘ball & chain’ representing the $1.4 trilling outstanding student debt at Washington University in St. Louis, Missouri.
Student loan borrowers could get some wiggle room when it comes to repaying private loans, thanks to two new proposals in the Senate banking bill.
The provisions in the bill would adjust how private student loan lenders treat the death or bankruptcy of co-signers, as well as how defaults are reported on a borrower’s credit report.
The changes would have positive results for borrowers, student loan experts said.
“It’s bipartisan, so this legislation is probably going to move,” said Mark Kantrowitz, a student loan expert and publisher at the website Private Student Loans Guru.
The first proposal makes it so that a lender cannot declare default or accelerate a private education loan when a co-signer of the loan dies or declares bankruptcy.
In addition, when the student dies, the private loan lender will be obligated to release the co-signer from the debt, if any remained.
Those new rules would only apply to private loan agreements made at least 180 days after the bill is passed.
“From a fairness perspective, it makes sense to make this no longer an option for future private student loans,” said Betsy Mayotte, founder and president of The Institute of Student Loan Advisors.
Mayotte said she has seen cases where a lender has accelerated a loan in order to make a co-signer’s estate liable.
Lenders do have choices in terms of how they enforce these rules, Mayotte said. Anyone who takes out a private student loan, particularly those who need a co-signer, should read the promissory notes carefully, she said.