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Federal lawmakers yesterday introduced a bill that would give student loan borrowers the power to leave that debt behind when they file for bankruptcy protection, the Wall Street Journal reported. The proposal would enable bankrupt student loan borrowers to cancel that debt along with medical bills, credit card debt and other payment obligations. Erasing student loans while in bankruptcy is very difficult, even for borrowers who face extreme financial difficulties. The bill, Student Borrower Bankruptcy Relief Act of 2019, marks the first time Senate lawmakers have proposed giving student loan borrowers the power to cancel their federal student loans. Nationwide, there is roughly $1.5 trillion in federal student loans outstanding, according to the Federal Reserve Bank of New York. House lawmakers introduced a similar bill in 2017. Reps. Jerrold Nadler (D-N.Y.) and John Katko (R-N.Y.) introduced the bill in the U.S. House of Representatives. Read more. (Subscription required.) 

Read Durbin's press release on the legislation. 

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy. 

The Consumer Financial Protection Bureau (CFPB) yesterday unveiled proposed rules for debt collectors that would restrict how often they can call borrowers, while making clear that firms can send unlimited text messages and emails as long as consumers don’t opt out of such communications, the Los Angeles Times reported. The CFPB regulations — the result of a process started under former Director Richard Cordray — would mark some of the first major rule changes for the industry in four decades if they are adopted. Under the proposal, debt collectors would be restricted to seven attempts to call a debtor by telephone in a week, and one actual conversation between a collector and debtor per week; there is also a new process through which debt collectors can leave voicemails. Collectors would be explicitly permitted to contact debtors through email and text message. Collectors would also be prohibited from contacting debtors through social media or through a work email. Rules would almost exclusively cover third-party debt collectors and generally wouldn’t apply to in-house creditors, according to a senior bureau official. The proposed rules also clarify what debt collectors have to disclose to consumers in official notices.

Federal investigators have issued subpoenas to several mortgage lenders that make loans to military veterans, seeking information on delinquencies and payments, Politico reported. The investigation is being led by the Department of Veterans Affairs Office of Inspector General in cooperation with the U.S. attorney in the Eastern District of New York, according to four people with knowledge of the subpoenas. At least eight lenders, and likely more, have been asked to turn over hundreds of files on VA home loans made between 2013 and 2017, according to two people with knowledge of the request. The requests include questions about quality control and loan audits. Some VA lenders have drawn scrutiny from regulators after they sold short-term, adjustable-rate mortgages to military homeowners as interest rates climbed. One VA program in particular — the Interest Rate Reduction Refinance Loan, or IRRRL — allows lenders to put existing VA borrowers into new loans without an appraisal or underwriting and was ripe for abuse.

The federal student loan program will cost the federal government $31 billion over the next decade, according to recent estimates from the nonpartisan Congressional Budget Office, Bloomberg Government reported. That’s a shift from past CBO forecasts that the government would profit from the program. The CBO in April 2018 projected the program would bring in $8.7 billion over the next decade. In 2017, the office estimated a $114 billion windfall within the next 10 years. The latest data shows how the Education Department’s student loan program has slowly grown more expensive for taxpayers. While some of the increase can be attributed to interest rates, the bulk of the change has come from the cost of the almost $1.5 trillion in federal loans students already have outstanding. More loans are in default, and less is being collected on outstanding loans, according to the the department’s budget request. In addition, more borrowers than anticipated are enrolling in income-driven repayment plans. These allow borrowers to pay a percentage of their income for a set number of years, after which the remainder of the loan is forgiven. About 30 percent of borrowers with direct federal loans, the most common type, were in income-driven repayment programs in fiscal 2018, a 29 percent increase from two years before, according to the Education Department. Read more. 

The issue of student loan debt and bankruptcy is addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy.