Private lenders could restore student borrowers' credit under Sen. Gary Peters’ bill

It should be easier for borrowers to repair their credit after defaulting on private student loans, Democratic U.S. Sen. Gary Peters said Monday at Michigan State University.

Peters, with Sen. Shelley Moore Capito, R-West Virginia, is introducing a bill that would allow lenders to restore borrowers’ good credit following a consecutive series of on-time payments over nine months.

Under current law, federal student loans may be rehabilitated once, and borrowers may repair their credit after the default. Private lenders do not have the same ability.

“It is simply unfair to deny some graduates the ability to get their finances back on track after a default simply because their loans are private instead of public,” said Peters of Bloomfield Township.

He noted that most borrowers who struggle are recent graduates who either don’t get a job soon after graduation or who don’t make enough to make loan payments on top of their other bills.

“It’s really meant to be a second chance, but it also addresses the reality of a student loan — which is that most people who default on their student loans do it early in their career before their career’s even started,” said Peters, noting the bill has the support of Navient, the nation’s largest servicer of student loans.

Peters and Capito previously introduced the Federal Adjustment in Reporting Student Credit Act in 2013 when both were members of the House.

In 2012, more than 850,000 private student loans were in default and even more in arrears, according to a the Consumer Financial Protection Bureau. Peters said this debt is hurting the nation’s economic recovery, as well as individuals’ ability to save for retirement and qualify for mortgage and other credit.

David Adams, president and CEO of the Michigan Credit Union League, said in a statement the legislation would help people restore their financial situation after default.

“Having customers with good credit is not only good for lenders, it’s good for Michigan’s economy,” Adams said. “When we can lend to more customers with good credit, then more Michiganders are able to buy a home, get a new car, start a business or save for retirement.”

Peters has co-sponsored a separate bill that would allow borrowers with outstanding student-loan debt to refinance at the lower interest rates approved last year for new borrowers. U.S. Rep. Debbie Dingell, D-Dearborn, has sponsored a similar measure in the House.

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