“What are you guys doing to help us with this student loan debt?" Waters asked the bankers. Three of them separately informed Waters that their banks have been out of the federal student-loan business since 2010, when the federal government began dispersing student loans directly.
Ms. Waters apparently didn't know that, which must have been embarrassing to her. Nevertheless, Waters did not ask a stupid question. She asked the wrong question. In fact, several banks are involved in the private student-loan market: Wells Fargo, Citizens Bank, Suntrust, and Sallie Mae--to name a few.
And it is a dirty business. Several banks are bundling their private student loans and selling them to investors as student-loan backed securities called SLABS, very much like the mortgage-backed securities that went south during the 2008 home-mortgage crisis.
Moreover, most banks require student borrowers to find co-signers for their private student loans, which usually means Mom and Dad. If a student defaults on a private student loans, the co-signer is on the hook to pay back the debt. Can a co-signer discharge a child's student loan in bankruptcy? Probably not. When Congress passed the so-called Bankruptcy Reform Act in 2005, it inserted a clause in the Bankruptcy Code making private student loans nondischargeable in the absence of "undue hardship."
So this is the question Congresswoman Maxine Waters should have asked the bankers who were arrayed before her at the Financial Services Committee hearing yesterday. "Do you support a change in the Bankruptcy Code that would make student loans dischargeable in bankruptcy like any other consumer debt?"
Put another way, she might have asked the bankers if they support Representative John Katko's bill to remove the "undue hardship" language from the Bankruptcy Code, which would allow destitute debtors to shed burdensome student-loan debts in the bankruptcy courts. How would the bankers have answered if Maxine Waters had asked them the right question?
And here are a two questions for Congressman Waters:
Do you support Congressman Katko bill, which calls for taking the "undue hardship" language out of the Bankruptcy Code?
Will you agree to be a co-sponsor of Representative Katko's bill, even though Mr. Katko is a Republican?
|Megabank CEOs: "We don't know nothin' bout no student loan program."|