The most controversial suggestion in the report taking aim at the $150 billion private student loan industry released last week by the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education was that Congress reconsider the 2005 law that excluded student loans from bankruptcy, according to a Bloomberg Businessweek commentary today. Congress had intended the law to promote more lending and lower interest rates, but the report says that it did not find strong evidence that those things actually happened. Since the report, Moody's looked at what changes to the law would mean for the lenders and found that while it would hurt them, it would not be too painful. Moody's says that only students who lacked parents to co-sign their loans would likely file for bankruptcy because it would be very rare for both kids and their parents to take the huge credit hit just to discharge the loans. Moody's also downplays the risk that lots of students will take out lots of loans, then immediately file for bankruptcy after graduation. Moody’s points to the CFPB report that did not find any instances of that type of "abuse" in the past, when the loans could be discharged. The last reason the proposed change would not help that many students, according to the commentary, is that the CFPB was talking only about changing the law for private loans. Government student loans make up 85 percent of the market, and those would not be touched.
