BILL ANALYSIS Ó
AJR 11
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ASSEMBLY THIRD READING
AJR 11 (Wieckowski)
As Amended May 13, 2013
Majority vote
BANKING & FINANCE 7-4
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|Ayes:|Dickinson, Blumenfield, |
| |Bonta, Chau, Linder, |
| |Perea, Weber |
| | |
|-----+--------------------------|
|Nays:|Morrell, Achadjian, |
| |Gatto, Harkey |
| | |
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SUMMARY : Urges the President and Congress of the United States
to support and pass legislation that would allow the discharge
of private student loan debt in bankruptcy. Specifically, this
bill :
1)Provides for the following findings:
a) Existing federal law exempts from discharge in a
bankruptcy case filed under Chapter 7 or Chapter 13 of the
Bankruptcy Code specified educational loans made, or
secured, by a lender other than the federal government,
also known as private student loans, unless the debtor
convinces a bankruptcy court that repayment would be an
undue hardship on the debtor and the debtor's dependents, a
sometimes difficult and expensive process not required to
discharge other unsecured nonpriority debt;
b) Californians should have the same ability to discharge
their private student loan debt as they do to discharge
their unsecured nonpriority debt;
c) Californians who are not given relief from their burden
of private student loan debt, even after a successful
completion of a bankruptcy case, are seriously hindered
from establishing personal economic stability and
contributing to the economic growth of the state;
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d) United States Senator Dick Durban and Representative
Steve Cohen have recently introduced the following
legislation in their respective congressional houses that
would permit private student loan debt to be discharged in
bankruptcy and are substantially similar to legislation
they each introduced in 2010 and 2011:
i) The Fairness for Struggling Students Act of 2013,
supported by eight cosponsors at the time of this
resolution.
ii) The Private Student Loan Bankruptcy Fairness Act of
2013, supported by 24 cosponsors at the time of this
resolution.
e) The inability of Californians to more easily discharge
private student loan debt prevents them from gaining the
"fresh start" that a successful bankruptcy case is intended
to provide.
EXISTING FEDERAL LAW prohibits the discharge of private student
loan debt in bankruptcy. (11 United States Code (U.S.C.)
Section 523(a)(8)(b)).
FISCAL EFFECT : None
COMMENTS : According to the author this resolution is necessary
for the following reasons:
Student loan debt is growing at an alarming rate in
the United States. At over $1 trillion, it has
surpassed personal credit card debt.
Private loans now comprise over 15% of the nation's
total education loan volume. These private student
loans generally have higher interest rates and
stricter repayment options than federal loans.
Outstanding private student loan debt exceeded $150
billion in 2012, held by more than 2.9 million
borrowers. More than $8 billion of this debt is in
default, according to the Consumer Financial
Protection Bureau.
The inability to discharge private student loan
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debt through bankruptcy the same way that other
private debt is discharged causes debtors to
postpone life-cycle events such as buying a home,
getting married, or starting a family. The
ability to discharge private student loan debt
would release debtors that are unable to pay from
their financial obligation.
Not only does the inability to discharge private
loan debt affect the individual debtor, it
negatively impacts the United States and California
economy?
Dischargeability of private student loan debt may
also induce private student loan lenders to improve
their interest rates and repayment plans to prevent
student loan borrowers from going bankrupt and
discharging their private student loan debt.
Student loan debt by the numbers :
1)Of the 20 million who attend college each year, close to 12
million or 60% borrow annually to help cover costs. (Source:
Chronicle of Higher Education).
2)There are approximately 37 million student loan borrowers with
outstanding student loans today. (Source: Federal Reserve
Board of New York (FRBNY)).
3)As of the first quarter of 2012, the under 30 age group has
the most borrowers at 14 million, followed by 10.6 million for
the 30-39 age group, 5.7 million in the 40-49 age group, 4.6
million in the 50-59 age group and the over 60 age group with
the least number of borrowers at 2.2 million for an overall
total of 37.1 million. (Source: FRBNY).
4)There is roughly somewhere between $902 billion and $1
trillion in total outstanding student loan debt in the United
States today. The FRBNY reports $902 billion while the
Consumer Finance Protection Bureau (CFPB) reports $1 trillion.
5)Roughly $864 billion is outstanding federal student loan debt
while the remaining $150 billion is in private student loans
(Source: CFPB). Private student loans are not made or backed
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by the federal government.
6)As of the first quarter in 2012, the average student loan
balance for all age groups is $24,301. About one-quarter of
borrowers owe more than $28,000; 10% of borrowers owe more
than $54,000; 3% owe more than $100,000; and less than 1%, or
167,000 people, owe more than $200,000. (Source: FRBNY).
7)Among all bachelor's degree recipients, median debt was about
$7,960 at public four-year institutions, $17,040 at private
not-for-profit four-year institutions, and $31,190 at
for-profit institutions. (Source: College Board).
8)As of October 2012, the average amount of student loan debt
for the Class of 2011 was $26,600, a 5% increase from
approximately $25,350 in 2010. (Source: The Project on
Student Debt).
9)The majority of borrowers still paying back their loans are in
their 30s or older.
10)Of the 37 million Americans with outstanding student loan
debt: Almost 40% of these borrowers are under the age of 30.
Nearly 42% are between the ages of 30 and 50. Seventeen
percent are older than 50.
11)Borrowers age 30-39 carry $307 billion in student loans,
followed by those under 30 at $292 billion, $154 billion in
the 40-49 age group, 50-59 at $106 billion, and the over 60
category carrying $43 billion, for a total outstanding debt of
$902 billion.
(Source: FRBNY).
12)Of the 37 million borrowers who have outstanding student loan
balances, 14%, or about 5.4 million borrowers, have at least
one past due student loan account. Of the $870 billion, $1
trillion in outstanding student loan debt, approximately $85
billion is past due.
(Source: FRBNY).
13)The official fiscal year (FY) 2010 two-year national student
loan cohort default rate rose to 9.1%, up from 8.8% in FY
2009, while the three-year rate declined slightly from 13.8%
to 13.4%. (Source: U.S. Department of Education).
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14)Only about 37% of federal student loan borrowers between 2004
and 2009 managed to make timely payments without postponing
payments or becoming delinquent.
15)For every student loan borrower who defaults, at least two
more borrowers become delinquent without default. Two out of
five student loan borrowers or 41% are delinquent at some
point in the first five years after entering repayment.
(Source: Institute for Higher Education Policy).
16)As of 2012, there are now more than $8 billion in defaulted
private student loans or 850,000 distinct loans in default.
(Source: CFPB).
17)As of early 2012, borrowers in their 30s have a delinquency
rate (more than 90 days past due) of about 6%, while borrowers
in their 40s have a delinquency rate double that, at about
12%.
18)Borrowers in their 50s have a delinquency rate of 9.4% and
those over 60 have a delinquency rate of 9.5%. (Source:
Federal Reserve Bank of New York Consumer Credit Panel).
19)From 2004 to 2009, 33% of undergraduate federal student loan
borrowers who left without a credential became delinquent
without defaulting and 26% defaulted, compared to 21% with a
credential who became delinquent without defaulting and 16%
who defaulted. (Source: IHEP).
20)From 2004 to 2009, a third or less of federal student loan
borrowers at four-year, public or private nonprofit
institutions became delinquent or defaulted on their loans,
while nearly half or more (45% and 53%, respectively) of their
borrowers were making timely payments on their loans.)
One-quarter to one-third of borrowers at for-profit and public
two-year institutions were making timely payments on their
loans, and more than half of all borrowers in these sectors
were delinquent or had already defaulted. (Source: IHEP).
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
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