New Changes to Protections for Borrowers of Private Student Loans

Section 601 of Public Law No. 115-174 amends the Truth in Lending Act by prohibiting a private student loan lender from declaring a default or accelerating a debt against a student loan borrower on the basis of the co-signer’s bankruptcy or death. A second provision releases the co-signer’s obligation upon the student’s death.  Nonetheless, these protections only apply to loans extended after November 20, 2018. In addition, the protections do not apply to private student loans consolidating other private student loans or to spouse co-signers where the spouse’s signature is needed to perfect the security interest in a loan.

Under another provision, students who successfully complete a loan rehabilitation program may request that negative credit reporting information about a private student loan be excluded from the consumer’s report. A loan rehabilitation program is one where the student makes a number of consecutive on-time payments on the loan.

Despite this, one should be aware that private student loan lenders are not required to offer a loan rehabilitation program and there are no specific standards for such a program.  In fact, the lender apparently is not even required to help remove the default in the student’s credit file even when the student completes the program and requests the changes in the student’s credit report.

At the same time, the rehabilitation program adds an additional risk for students. If a student begins making payments under such a program after the statute of limitations has run on the private student loan, then the payments may revive the limitations period.  This means that the student could again be subject to a collection lawsuit.

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