Earlier this week the U.S. approved an amendment to the Restoring American Financial Stability Act of 2010 (S.3217) that would result in lower fees paid by colleges when students use credit and debit cards to pay for tuition and books.

Amendment S. Amdt. 3989, with a vote of 64-33, targets the “swipe fees” that banks charge merchants to process credit- and debit-card payments. The fees average 1-2 percent of a purchase.

The amendment would require the government to issue regulations to ensure that debit-card swipe fees are “reasonable and proportional” to the cost of processing transactions. In addition, the amendment would allow retailers to set minimum transaction amounts for card purchases and offer discounts to customers who pay with lower-cost cards or with cash.

As reported earlier in this blog, efforts to include an amendment to require private educational lenders to obtain institutional certification prior to making loans to students is still under consideration. Representatives from several organizations that represent financial aid administrators, lending institutions, and students continue to urge the U.S. Senate keep this student loan related-language in the bill.

Finally, several additional amendments are still in the works that could effect private student loans. These amendments include:

• An amendment from Senator Al Franken (D-MN) that would restore bankruptcy protections to student loan borrowers.
• An amendment from Senator Dick Durbin (D-IL) that would extend the newly created Consumer Financial Protection Bureau’s (CFPB) authority to banks and credits unions with assets between $1 billion and $10 billion that originate private student loans.
• An amendment from Senators Charles Schumer (D-NY) and Jack Reed (D-RI) that would enhance CFPB enforcement over non-bank entities that extend credit or make loans.  A vote on the final version of the bill is expected some time next week.

The Consumer Bankers Association, the Education Finance Council, the National Council of Higher Education Loan Programs, the National Association of Student Financial Aid Administrators, the Institute for College Access and Success and the U.S. Public Interest Research Group are urging the U.S. Senate to include student loan related-language in the Restoring American Financial Stability Act of 2010 (S.3217).

The language would require providers of non-federal student loans to get colleges’ approval before they make such loans to students. The intention is to assure that borrowers turn to more-expensive private loans only after they have exhausted federal, state, and institutional grants or at least less costly federal student loans.

The provision would mimic similar language passed in December by the U.S. House of Representatives in the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), which included a provision (Sec. 4818) that would require private educational lenders to obtain institutional certification prior to making loans to students. 

Last week U.S. Rep. Paulsen (R-MN) introduced legislation to express the sense of Congress that the federal Pell Grant program should be a high funding priority.

House Resolution 5198 (HR 5198) was introduced at a time when the Pell Grant currently faces an estimated $5 billion budgetary shortfall that may threaten to reduce awards to students.

The shortfall is due to a dramatic increase in the number of students served by the program. This year the program is estimated to to provided aid to 8.3 million undergraduate students.

The bill has been referred to the House Committee on Education and Labor for further consideration.

Yesterday, the U.S. House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held a hearing to discuss the Private Student Loan Bankruptcy and Fairness Act of 2010.

The Act would reverse current bankruptcy protections for private student lenders included in the 2005 bankruptcy law and allow most private student loans to be discharged in bankruptcy.

The National Association of Student Financial Aid Administrators and other groups representing students, consumers, institutions of higher education, and civil rights and public policy organizations have expressed support for the bill.

Representative Steve Cohen (D-TN), sponsor of the bill and the chairman of the Subcommittee, echoed the support of these organizations at the hearing. He stated, “the bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected.”

Those opposed to the bill, including many nonprofit and state-based student loan providers, cited concerns with regard to increased financing costs, including higher market interest rates for borrowers.  As the President of the Education Finance Council, which represents nonprofit and state-based student loan providers, stated at the hearing, “making all private student loans funded by nonprofits completely dis-chargeable in bankruptcy would raise financing costs, harming the ability of these public -purpose entities to continue to offer below market interest rates to borrowers.”

In addition, opponents of the legislation question why Congress would not extend the same consumer protections to all education loans, regardless of source or tax status of the entity or governmental institution providing the funds.

Two versions of the legislation have been introduced in Congress. The Private Student Loan Bankruptcy Fairness Act of 2010 (H.R. 5043) was  introduced by Rep. Steve Cohen (D-TN) in the House. In the Senate, The Restoring American Financial Stability Act of 2010 (S. 3217) was introduced by Sen. Christopher Dodd (D-CT).

Though very similar with regard to intentions the Senate bill would allow all private education loans to be discharged in bankruptcy, while the House bill would not allow private loans substantially funded by nonprofit institutions to be discharged. Neither bill would allow federal student loans to be discharged in bankruptcy.

Earlier this week, the Private Student Loan Bankruptcy Fairness Act of 2010 (H.R. 5043) was introduced in the U.S. House of Representatives.

The Act would reverse current bankruptcy protections for private student lenders included in the 2005 bankruptcy law and allow most private loans to be discharged in bankruptcy. Prior to changes made in the bankruptcy code in 2005, only federal student loans and private loans where substantially all of the funds were provided by a non-profit institution were non-dischargeable through bankruptcy.

The bill, introduced by Rep. Steve Cohen (D-TN), is scheduled for a hearing today before the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law.