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House Democrats have set up a vote today on a measure opposed by the banking industry that would gut a controversial provision of the 2005 Bankruptcy Act that made it far tougher for people to discharge private student loans. The vote comes after a surprise push by Rep. Danny Davis (D-Ill.) this week to get the measure considered as an amendment to legislation reauthorizing the Higher Education Act. The Davis bill would nullify a provision prohibiting people from wiping away non-government student loan debt except in cases of “undue hardship. The change had provoked an outcry from many Democrats, who complained that Republicans slipped it into the bill without debate or hearings. However, much of the centrist Democratic Blue Dog Coalition supported the overall bankruptcy legislation.Caught off-guard, banking lobbyists were scrambling on Wednesday to drum up opposition to the measure. But the Rules Committee Wednesday night included the amendment as part of the rule to be considered on the floor Thursday. Davis introduced the measure at the eleventh hour, even though he sits on the Education and Labor Committee that drafted the underlying higher education legislation. He billed it as economic stimulus. “Our economy is really terrible right now,” he told The Hill. “Anything that you can do to lighten that depression would be an economic stimulus.” Senate Majority Whip Dick Durbin (D-Ill.) introduced a bill last year to remove the undue hardship test and has been pushing behind the scenes to have similar legislation considered in the House. In contrast to Durbin’s legislation, however, Davis would only allow those borrowers who graduated at least five years’ ago to discharge their private loans. The change is fiercely opposed by the banking industry, which argues that allowing students to wipe away their student loans would raise borrowing costs. ”It would increase the cost of student loans, which would make college more expensive,” the senior vice president for government affairs of the Financial Services Roundtable, Scott Talbott, said. Private loans are growing as a share of total student debt due to the rising cost cost of college tuition and the caps on government-backed or direct student loans. The 2005 law brought the treatment of private student loans in bankruptcy in line with such government loans, which have long been non-dischargeable. Banks argue that the change was needed to prevent people from defrauding them. But critics say that bankruptcy courts have interpreted “undue hardship” far too narrowly, leaving students saddled with debts after going through bankruptcy. Davis argues that the positive impact of his measure would “outweigh any negatives or downsides that might exist.” |
