II 11TH CONGRESS 1ST SESSION S. 200 To provide for the establishment of a mechanism to allow borrowers of private education loans to refinance their loans, and for other purposes. IN THE SENATE OF THE UNITED STATES SEPTEMBER 17, 201 Ms. HEITKAMP introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions A BILL To provide for the establishment of a mechanism to allow borrowers of private education loans to refinance their loans, and for other purposes. 1 2 7 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the Private Education Loan Modification Act of 201. SEC. 2. FINDINGS AND PURPOSE. (a) FINDINGS. Congress finds that SSpencer on DSKSPTVN1PROD with BILLS 8 (1) as of 201, the Federal Reserve Consumer 9 Credit Report stated that there is more than 10 $1,00,000,000,000 in outstanding student loan VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00001 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 2 1 debt in the United States, including more than 2 $10,000,000,000 in private education loans; (2) in 2008, 81 percent of individuals grad- uating with an undergraduate degree with more than $0,000 in student loans had a private edu- cation loan; 7 () according to a 2012 study of the private 8 student loan market published by the Department of 9 Education and the Bureau of Consumer Financial 10 Protection, there were 80,000 private student loan 11 defaults with an outstanding principal balance more 12 than $8,000,000,000; 1 () the limited number of lenders in the private 1 education loan marketplace reduce the ability of bor- 1 rowers with private education loans to restructure, 1 refinance, or negotiate repayment terms for their 17 current loans, leading to excessive debt burdens and 18 potential default; 19 () as reported by the Student Loan Ombuds- 20 man of the Consumer Financial Protection Bureau 21 in the 201 annual report, it appears that few, if 22 any, private student lenders and loan servicers have 2 developed transparent, widely offered flexible repay- 2 ment options that mitigate defaults for borrowers in 2 distress; VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00002 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 1 () excessive student indebtedness reduces eco- 2 nomic activity, threatens homeownership, hurts small business growth, and limits opportunities for economic expansion across rural and urban commu- nities; and (7) as noted in 201, the Federal Deposit In- 7 surance Corporation, the Office of the Comptroller 8 of the Currency, and the Board of Governors of the 9 Federal Reserve System encouraged financial insti- 10 tutions to work constructively with private student 11 loan borrowers experiencing financial difficulties, so 12 borrowers have access to safe-and-sound lending 1 practices. 1 (b) PURPOSE. The purpose of this Act is to spur 1 economic growth, by establishing a mechanism to allow 1 borrowers of private education loans to refinance their 17 loans in order 18 (1) to facilitate greater competition in the pri- 19 vate education lending and refinancing markets, par- 20 ticularly those serving underserved and rural loca- 21 tions; 22 (2) to address inefficiencies in the private edu- 2 cation lending and refinancing markets; 2 () to encourage innovation in the private edu- 2 cation refinancing markets; and VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 0000 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 1 () to promote the participation of private cap- 2 ital in the private education refinancing markets. 7 8 9 10 11 12 1 1 1 1 17 18 19 20 21 22 2 2 SEC.. DEFINITIONS. In this Act (1) the term private education loan has the same meaning as in section 10(a) of the Truth in Lending Act (1 U.S.C. 10(a)); and (2) the term Secretary means the Secretary of the Treasury, other than in the context of the Secretary of Education. SEC.. TEMPORARY AUTHORITY TO CREATE A CREDIT FA- CILITY TO INCREASE MARKET EFFICIENCY IN THE STUDENT LOAN MARKET. (a) AUTHORITY. (1) IN GENERAL. (A) CREDIT FACILITIES AUTHORIZA- TION. Upon a determination by the Secretary that borrowers are unable to secure adequate credit accommodations with existing private education loans, the Secretary, notwithstanding any provision of section 8 of the Higher Education Act of 19 (20 U.S.C. 1091), is authorized to establish lending, purchase, and other credit facilities to VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 0000 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 1 (i) accommodate reasonable refi- 2 nancing opportunities or other loan adjust- ments that (I) improve the sustainability of payments for the borrower; and (II) reduce the likelihood of de- 7 linquency and default on private edu- 8 cation loans; 9 (ii) benefit borrowers that are most 10 likely to have private student debt service 11 obligations that represent a dispropor- 12 tionate share of their income; and 1 (iii) ensure that borrowers pay lower 1 interest rates that are commensurate with 1 credit risk, so that they may pursue more 1 economically productive activities, such as 17 home purchases and small business forma- 18 tion. 19 20 21 22 2 2 (B) CONSULTATION. (i) IN GENERAL. Any determination under subparagraph (A) shall be made jointly with the Secretary of Education and the Director of the Bureau of Consumer Financial Protection. VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 0000 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
1 2 7 8 9 10 11 12 1 1 1 1 17 18 19 20 21 22 2 (ii) COMPLIANCE SYSTEM. Prior to establishing a facility under this subsection, the Secretary, or any administrator designated by the Secretary to establish a program to carry out the authority provided in this subsection, shall establish a compliance system in consultation with the Bureau of Consumer Financial Protection. (2) NO NET COST TO GOVERNMENT. Mecha- nisms established under this subsection shall not result in any net cost to the Federal Government, as determined jointly by the Secretary, the Secretary of Education, and the Director of the Office of Management and Budget. (b) FEDERAL REGISTER NOTICE. Prior to exercising any authority provided under subsection (a), the Secretary shall publish a notice in the Federal Register to seek comment from interested parties on its proposed exercise of such authority, including (1) the terms and conditions governing the lending, purchases, or other credit facilities authorized by subsection (a); SSpencer on DSKSPTVN1PROD with BILLS VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 0000 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
1 2 7 8 9 10 11 12 1 1 1 1 17 18 19 20 21 22 2 7 (2) an outline of methodology and factors considered in the purchase or restructuring of private education loans; () private education loan modification options that may be available for existing loans; () how they will ensure that borrowers whose education debt service obligations represent a disproportionate share of their income will be provided relief; () how the use of the methodology and factors, as proposed in the notice, will be used to ensure that any exercise of authority by the Secretary will result in no net cost to the Federal Government; and () how any mechanism will be designed to avoid extraordinary gains by market participants holding loans in distress. (c) INITIAL REPORT. Not later than 90 days after the date of enactment of this Act, the Secretary shall submit to the appropriate committees of Congress a report that includes (1) current market liquidity and the status of loan financing by lenders, including those serving underserved and rural locations; SSpencer on DSKSPTVN1PROD with BILLS VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00007 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 8 1 (2) the public economic benefits and funds nec- 2 essary for initiating a private education loan pro- gram; () upon determining limited access to loans by borrowers, a plan of the Secretary to implement credit mechanisms under the authority of this Act; 7 () a description of macroeconomic benefits of 8 increased efficiency and refinance activity in the stu- 9 dent loan market; and 10 () a description of the benefits through the use 11 of such authority to private education loan bor- 12 rowers, including how any incidental net gain from 1 the credit mechanism would be used to benefit stu- 1 dent borrowers. 1 (d) ANNUAL REPORTS. Beginning 1 year after the 1 date of the first use of the authority provided under this 17 section, the Secretary shall provide an annual report to 18 the Committee on Banking, Housing, and Urban Affairs 19 of the Senate and the Committee on Financial Services 20 of the House of Representatives describing the utilization, 21 impact, and financial performance of any program estab- 22 lished under the authority of this section. 2 (e) PUBLIC AWARENESS. Not later than 0 days 2 after the date of publication of a notice in the Federal 2 Register pursuant to subsection (b), the Secretary, in con- VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00008 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
SSpencer on DSKSPTVN1PROD with BILLS 9 1 sultation with the Secretary of Education and the Director 2 of the Bureau of Consumer Financial Protection, shall begin a national awareness campaign to alert all private education loan borrowers who may benefit from any pro- gram or facilities established under this section. Such campaign shall include outreach to targeted populations 7 of borrowers that are most likely to have private education 8 loan debt service obligations that represent a dispropor- 9 tionate share of their income. 10 (f) EXPIRATION OF AUTHORITY. Three years after 11 the date on which a credit facility is established under this 12 Act, and not later than years after the date of enactment 1 of this Act, any new lending, purchase, or other activity 1 initiated through the facilities established by the Secretary 1 under subsection (a) shall cease. 1 17 18 19 20 21 22 2 2 2 SEC.. SENSE OF CONGRESS. It is the sense of Congress that the Federal financial institutions, such as the Federal Financing Bank and the Federal Reserve banks, and federally chartered private entities, such as the Federal home loan banks, should consider, in consultation with the Secretary, the Secretary of Education, and the Director of the Bureau of Consumer Financial Protection, using available authorities in a timely manner, if needed, to assist in ensuring that borrowers of private education loans can secure credit accommoda- VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00009 Fmt 2 Sfmt 201 E:\BILLS\S200.IS S200
1 2 10 tions to refinance existing loans, in a manner that results in no increased costs to taxpayers and will avoid extraordinary gains by market participants holding loans in distress in order to avoid unnecessary loan modifications. Æ SSpencer on DSKSPTVN1PROD with BILLS VerDate Sep 11 201 0:29 Sep 18, 201 Jkt 09200 PO 00000 Frm 00010 Fmt 2 Sfmt 01 E:\BILLS\S200.IS S200