In the coming weeks, U.S. Representative Tim Bishop is expected to introduce legislation titled the Protecting Students from Automatic Default Act, which would revise the rules regarding automatic defaults on private education loans.
Currently, most private lending institutions require students to have a co-signer, usually a parent or other family member. If the co-signer suddenly dies, or files for bankruptcy, the private lender declares an automatic default on the loan, forcing the borrower to pay the loan back in full immediately. If the student cannot meet that requirement, their credit will be negatively impacted.
The new legislation will require private lending institutions to notify students when a loan is placed on automatic default. In addition, the act will require that the lender allow a student 90 days to find a new co-signer.
“The practice automatically defaulting on student loans without notice to the student or an opportunity to correct the situation is deplorable,” said Mr. Bishop. He went on to say that students deserve access to higher education even when their financial circumstances suddenly change.