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PRIVATE STUDENT LOAN BANKRUPTCY FAIRNESS 

ACT OF 2010 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

ON

H.R. 5043 

APRIL 22, 2010 

Serial No. 111–91 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

STEVE COHEN, Tennessee, Chairman 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

DANIEL MAFFEI, New York 

ZOE LOFGREN, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

JOHN CONYERS, JR., Michigan 

JUDY CHU, California 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

HOWARD COBLE, North Carolina 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

APRIL 22, 2010 

Page 

THE BILL 

H.R. 5043, the ‘‘Private Student Loan Bankruptcy Fairness Act of 2010’’ ......... 4 

OPENING STATEMENTS 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 1 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Ranking Member, Subcommittee on Commercial and Administrative Law .................................................................................................. 6 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 7 

WITNESSES 

Ms. Deanne Loonin, National Consumer Law Center, Boston, MA 

Oral Testimony ..................................................................................................... 9 

Prepared Statement ............................................................................................. 11 

Mr. John A. Hupalo, Ramirez Capital Advisors, Weston, MA 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 26 

Ms. Valisha Cooks, Los Angeles, CA 

Oral Testimony ..................................................................................................... 30 

Prepared Statement ............................................................................................. 33 

Mr. Adrian M. Lapas, Adrian M. Lapas, PA, Goldsboro, NC, on behalf of 

the National Association of Consumer Bankruptcy Attorneys 

Oral Testimony ..................................................................................................... 36 

Prepared Statement ............................................................................................. 38 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable Jim Jordan, a Representative in Congress from the State of Ohio, and Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 58 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress from the State of Georgia, and Member, Subcommittee on Commercial and Administrative Law ......................................... 65 

Response to Post-Hearing Questions from Deanne Loonin, National Consumer 

Law Center, Boston, MA ..................................................................................... 67 

Response to Post-Hearing Questions from John A. Hupalo, Ramirez Capital 

Advisors, Weston, MA .......................................................................................... 68 

Letter to the Honorable Steve Cohen, Chairman, Subcommittee on Commercial and Administrative Law, from the National Consumer Law Center 

and the National Association of Consumer Bankruptcy Attorneys ................. 69 

Page

IV 

Coalition Letter to the Honorable Steve Cohen, Chairman, Subcommittee 

on Commercial and Administrative Law ........................................................... 70 

Prepared Statement of the Financial Services Roundtable ................................. 71 

(1) 

PRIVATE STUDENT LOAN BANKRUPTCY 

FAIRNESS ACT OF 2010 

THURSDAY, APRIL 22, 2010 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:35 a.m., in room 

2141, Rayburn House Office Building, the Honorable Steve Cohen 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Cohen, Johnson, Scott, Chu, Franks, 

Jordan, and Coble. 

Staff present: (Majority) James Park, Counsel; Adam Russell, 

Professional Staff Member; and Zachary Somers, Minority Counsel. 

Mr. COHEN. Thank you. This hearing of the Committee on the 

Judiciary, Subcommittee on Commercial and Administrative Law, 

will now come to order, in the presence of Mr. Apelbaum and his 

two beautiful young ladies. 

Without objection, the Chair will be authorized to declare a recess of the hearing. 

I will now recognize myself for an opening statement. 

Last September, this Committee held a hearing on the dischargeability of educational debt and bankruptcy. Based on the discussion 

that occurred at that hearing, I have joined with Representative 

Danny Davis, longtime champion on this issue, to introduce H.R. 

5043, the ‘‘Private Student Loan Bankruptcy Fairness Act of 2010.’’ 

Our bill is very narrowly tailored to make debt resulting from 

student loans issued by private, for-profit institutions dischargeable in bankruptcy. Currently, the bankruptcy code conditions the 

discharge of educational debt on a debtor showing that the debtor 

will suffer ‘‘an undue hardship’’ if forced to repay the debt. This 

standard makes educational debt effectively non-dischargeable, except in the most extreme circumstances, ‘‘undue hardship.’’ 

In 1978, Congress gave student loan creditors more favorable 

treatment in bankruptcy than other unsecured creditors in order to 

protect the viability of the Federal student loan program and, more 

generally, the public’s money. Over the next 27 years, Congress 

made a series of amendments to the student loan non-dischargeability provision, making it progressively harder and harder for 

student borrowers to discharge their educational debt. 

In 2005, Congress extended conditional dischargeability to private student loans issued by for-profit entities without any subVerDate Aug 31 2005 11:50 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\COMM\042210\56069.000 HJUD1 PsN: 56069
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stantive discussion or empirical evidence to support such an extension. The private student loan industry contends that such an extension was needed to dissuade borrower abuse of the bankruptcy 

process and to minimize the risk for lenders, thereby making private loans affordable. 

Now that we have had 5 years of experience with making private 

student loans non-dischargeable, we have found that private student loans are no cheaper than they were prior to 2005, as interest 

rates and fees remain high. 

Moreover, private student loans continue to carry risks that are 

not present with Federal student loans and make bankruptcy relief 

more necessary for borrowers, should they run into financial trouble as private loans, lack many of the consumer protections of Federal loans. 

Relative to Federal student loan borrowers, private student loan 

borrowers often find themselves trapped under the weight of tens 

of thousands of dollars of expensive, high-interest, high-fee student 

loan debt with no guaranteed opportunity for income-based repayment, deferment forbearance, or partial loan forgiveness, in essence, a lifetime of debt to private lenders. 

H.R. 5043 addresses these concerns by amending bankruptcy 

code section 523(a)(8) in two ways. First, it eliminates section 

523(a)(8)(B), which currently makes debt from private loans issued 

by for-profit lenders non-dischargeable in bankruptcy absent undue 

hardship on the debtor and the debtor’s dependents. 

Second, the bill amends section 523(a)(8)(A)(i) to clarify that only 

loans for which substantially all of the funds were provided by a 

non-profit institution remains non-dischargeable in bankruptcy. 

This change helps to ensure that only genuinely non-profit lenders 

are protected and not-for-profit lenders that issue loans guaranteed 

by a non-profit guarantor. 

Access to education has been one of the defining issues in my legislative career, which has extended now 3 decades. As a Tennessee 

senator, I fought for 18 years to bring about Tennessee HOPE education lottery scholarships. I was inspired to direct the funding of 

the scholarship money to college loans, college tuition because of a 

young lady like Ms. Cooks who came to me who had been an intern 

in the Tennessee legislature and later came to me with pounds of 

debt. 

And I looked at her debt, which was like 20-some-odd-thousand 

dollars at a time when 20-some-odd-thousand dollars was a lot of 

money—more like $60,000, maybe, today—and I thought, ‘‘My god, 

she will never be able to pay this off. The rest are for life. She will 

be stuck with this debt.’’ And it just didn’t seem right, and so we 

ended up passing our scholarship program. 

But this issue is a deja vu. Students with large debts that can’t 

get out of them and people making money, which is kind of the 

American way, but nevertheless, when there is a better American 

way, we ought to pursue it. So these scholarships gave many Tennesseans that opportunity, and they get out without as much debt 

or any debt because of that effort. 

I view with great concern this particular issue. And seeing our 

young people the opportunity of America and America’s future 

being used as fodder for people who probably are doing pretty well 

3 

already and are just doing better—and there are circumstances 

where we need to modify our laws to give somebody a better 

chance, whether it is the young student, as distinguished from the 

successful financial institution, I think most of us kind of go with 

the young student. 

There may be—and I understand from the hearings—some folks 

that might want to be—use this as a basis to get a loan and then 

discharge it, and we need to find a way to ferret those out, and I 

think that is something we can do. 

So I thank Representative Davis for his work on this issue. He 

has done it for a long time and has been a very, very passionate 

supporter. And I appreciate the opportunity to work with Senator 

Durbin, a great leader in the Senate. He introduced the Fairness 

for Struggling Students Act, Senate bill 3219, which is similar in 

goals and similar in approach to the bill that we have introduced 

here, not as artfully drafted as the one Mr. Park drew for us, but 

it is the Senate. 

And that is where we are. So I thank our witnesses for being 

here today, and I look forward to their testimony. 

And I now recognize my colleague, Mr. Franks, who I know has 

a great concern for students, as well, him having been a student 

at one time, the distinguished Ranking Member for his opening remarks. 

[The bill, H.R. 5043, follows:] 

4 


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HR5043-2.eps
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Mr. FRANKS. Thank you, Mr. Chairman. I think I am still a student. 

Yes, Mr. Chairman, I have to say at the outset, so that my perspective is taken in context and from the point of view and the 

spirit that it is given, that some of us in this Congress believe that 

government should not be measured by how many people it helps, 

but by how many people no longer need government’s help. 

So I want to make that clear. It is never a—I think sometimes 

that those of us that are against bills like this are seen as not caring about the people, but we are concerned that this will even 

cause them greater harm in the long run than it would have had 

it been left as it was. 

So let me just start out and say that H.R. 5043 makes private 

student loans fully dischargeable in bankruptcy. Currently these 

loans are dischargeable only if repaying the loans would constitute 

an ‘‘undue hardship.’’ 

This bill singles out private student loans for less favorable treatment in bankruptcy than loans funded by the government and nonprofit organizations. Now, why should we single out private student loans for less favorable treatment? Private student loans are 

an important means for financing higher education. They are used 

to help fill the gap between the actual cost of attendance and the 

limits on Federal loans and school-provided financial aid. 

And because this gap is increasingly growing wider, private loans 

are becoming a more and more important tool to finance education. 

In fact, the student from the Institute for Higher Education policy 

found that ‘‘private loans help students attend schools that they 

want to attend, rather than the schools that they might have to attend because of inadequate financial resources.’’ 

The exception from bankruptcy discharge that private student 

loans currently receive is vital. First, the exception ensures that 

private capital continues to flow into the student lending market. 

This is kind of an important point, Mr. Chairman, which has tightened considerably over the last 2 years due to economic conditions. 

Student lenders are finding it more difficult to raise capital because investors are not buying securities backed by student loans. 

Why would they? 

Legislation like H.R. 5043 that makes student loans less attractive to investors will inevitably have the effect of shrinking an already depressed private student loan market. If lenders are forced 

to scale back student lending because private student loans are 

subject to bankruptcy discharge, many students will be denied access to higher education. 

Second, the bankruptcy exception for student loan wards off 

abuse by student borrowers. Unlike other debt, student loans are 

secured only by the anticipated future success of the individual student borrower. Upon graduation, student borrowers typically have 

few assets to discharge from just—from filing bankruptcy. 

However, student borrowers have substantial future earnings potential. The bankruptcy exception for student loans is designed to 

remove the potential for recent graduates to use the bankruptcy 

system to unencumber those future earnings. 

7 

In short, 5043 will discourage private lending and encourage 

abuse of the bankruptcy system. Moreover, this legislation is a 

blunt force rather than a nuanced approach. 

If the current law is too harsh, then, Mr. Chairman, let’s clarify 

what constitutes an undue hardship. There is a great deal of work 

that we could do there, latitude that we could do there, because we 

all understand undue hardship. 

Or if certain private loans are abusive, then let’s create a ‘‘safe 

harbor’’ for future—for the features a private loan must have to get 

the protection. Let’s not target all private loans based on a subset 

of arguably abusive loans or lenders. 

Mr. Chairman, H.R. 5043 is not the answer to the growing debt 

burden that our Nation’s graduates face. The real culprit is the rising cost of higher education. Nothing in this legislation will even 

remotely address that problem. In fact, as lenders are forced to increase the pricing of student loans to account for the new risk this 

bill creates, borrowers will end up paying even more for higher 

education. 

And, Mr. Chairman, I guess the thing that is the greatest concern to me is that I believe that this legislation is well intended, 

but it will inevitably have the effect of hurting the very ones that 

it ostensibly intends to try to help. So with that, I yield back. 

Mr. COHEN. Thank you, Mr. Franks. 

Do Mr. Johnson or Mr. Scott seek recognition? Mr. Johnson is 

recognized for an opening statement, distinguished Chairman of 

the Subcommittee on Antitrust. 

Mr. JOHNSON. Thank you, Mr. Chairman, for holding this very 

important hearing on the Private Student Loan Bankruptcy Fairness Act. Fairness is so important, and I know you have had a long 

history of working in this area to ensure fairness. 

And it is imperative that we examine the issues of dischargeability of private student loans in bankruptcy, particularly in light of 

the record-breaking unemployment numbers that we have seen in 

this economy. This is the same economy that is causing everyday 

Americans to go bankrupt in order to meet basic needs. It is also 

the same economy that allows corporations to wipe out their pension obligations to retired workers under the bankruptcy code. 

Student loans are unsecured debt, and unsecured debt is typically dischargeable in bankruptcy. However, the bankruptcy code 

has a specific carve-out that does not exempt student loans, unless 

a debtor is able to demonstrate that continued repayment of the 

debt would impose an undue hardship on the debtor. 

In essence, this means that current bankruptcy law treats students who face legitimate financial distress the same severe way as 

people who are trying to discharge child support debts, alimony, 

overdue taxes, and criminal fines. 

We are not discussing tax evaders or absent fathers. We are talking about unfairly penalizing adults who, as naive and financially 

unsophisticated young people, agree to be confusing terms of a private loan agreement in order to get an education to become productive citizens and contribute to our society. 

And unlike Federal loans, private student loan borrowers are 

often unable to work out terms that ensure a reasonable and fair 

repayment schedule. Federal loans contain mechanisms to ensure 

8 

repayment without excessive financial distress on the part of the 

borrower. Private loan students—private student loans lack access 

to the most important deferment income-based—income-based repayment or loan forgiveness options that come with Federal student loans. 

This leaves most private student lender—excuse me. This leaves 

most private student loan borrowers at the mercy of the lender if 

they face financial distress due to unemployment, disability or illness. 

In short, private student loans must be addressed as we have a 

responsibility to ensure that our youth can obtain a quality education without going broke. 

Thank you, Mr. Chairman, for scheduling this hearing. I look forward to the hearing and from our witnesses today. Thank you. 

Mr. COHEN. Thank you, Mr. Johnson. 

We now will start the panel. And, Mr. Scott, did you desire to 

make an—you just desire to lobby Mr. Johnson? Okay, good luck. 

I am now pleased to introduce the witnesses and hear their testimony for today’s hearing. First, thank you all for participating. Our 

program, like all others, is that your written statements, without 

objection, will be placed in the record. 

I ask you limit your remarks to 5 minutes. You have got a lighting system kind of in front of you there, and when it is green, it 

means you are starting, and you have got—you are within the 4 

minutes of your opening. When it gets to yellow, you have got a 

minute to wind down. And when it gets to red, Beulah blows the 

buzzer and you are finished, so you need to be completed. 

We have an opportunity for each witness after their testimony 

for Subcommittee Members to ask you questions. We are also 

under the same 5-minute red, yellow, green program, and—but we 

can submit questions to you later, so it doesn’t mean you are homefree. 

Our first witness is Ms. Deanne Loonin. Ms. Loonin is the staff 

attorney with the National Consumer Law Center and the director 

of the National Consumer Law Center’s student loan borrower assistance project, a resource for borrowers, their families, and advocates representing student loan borrowers. 

She assists attorneys representing low-income consumers and 

teaches consumer law to legal services, private consumer attorneys, 

and other advocates. She also provides direct representation of lowincome student loan borrowers and maintain student loan borrower 

assistance Web sites. She has served as legal aid representative at 

the recent Department of Education negotiated rule-making sessions. 

Prior to joining the NCLC, she worked at legal services in Los 

Angeles known as DEC—DEC? Whatever. You got it. 

Thank you for being here. We appreciate Ms. Loonin and appreciate her for announcing the name of her 1997 employer. And now 

you can begin your testimony. 

9 

TESTIMONY OF DEANNE LOONIN, 

NATIONAL CONSUMER LAW CENTER, BOSTON, MA 

Ms. LOONIN. Thank you very much, Mr. Chairman, and the other 

Members of the Committee. Thank you for inviting me here to testify today. 

I am here today on behalf of NCLC’s low-income clients. Through 

my work at NCLC, I hear not only from these clients who I work 

with directly, but also from thousands of student loan borrowers 

through my Web site and also through the attorneys and advocates 

I work with across the country who also represent student loan 

borrowers. 

It is a diverse group of students who I hear from, all ages, all 

class levels, all different parts of the country, but they all have one 

thing in common, at least one thing in common. They all tried to 

better themselves through education. 

It is one of the strongest messages out there as we grow up. If 

you go to college, you are much more likely to succeed, and they 

listen to that message. Some graduated who I hear from; some 

didn’t. It is a diverse group, as I said. But one other thing they all 

have in common, more unfortunately, is that they are all struggling 

with the debt burden of student loans. 

When they come into my office, it is sort of a frustrating scenario, but what usually happens is we first try to figure out, what 

kind of student loan does the person have? And most borrowers 

have no idea, very confusing. It is a complex process, understanding the difference between a private loan and a Federal student loan. 

The way I know it is a private student loan is I look at the interest rate. And I see, unfortunately, APRs 11 percent, 12 percent, 13 

percent, higher, up to sometimes over 20 percent. And that is when 

we know for sure there are other ways to tell, too, that this is a 

private loan we are dealing with. 

If it is a Federal student loan, they could still be very deep in 

debt. It is still a problem. But there are some imperfect, but some 

of them actually better than imperfect solutions out there for those 

borrowers. 

When I talk to the private loan borrowers, it is a completely different story. Basically, we have to try to negotiate with the lenders—and I do this all the time, and they offer virtually nothing for 

my clients. 

The consequences to these—to these borrowers are severe in 

terms of their credit report, in terms of their psychology, in terms 

of thinking about whether they ever want to go back to school 

again. It is a huge burden for them, and bankruptcy is not a realistic option. 

That is why we are here today in support of this legislation, not 

because bankruptcy is the best option—I want to be clear about 

that. When I speak to my clients, they always tell me, ‘‘We really 

don’t want to file for bankruptcy.’’ It is considered a failure in their 

eyes in a lot of ways or humiliating. But in some cases, it is the 

only choice they have to move on with their lives. 

So we support the legislation for them, but also because there is 

no rationale for this heightened standard for students—for the private student loans. And I want to just go through a couple of reaVerDate Aug 31 2005 11:50 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 H:\WORK\COMM\042210\56069.000 HJUD1 PsN: 56069
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sons in the few minutes I have left that we often hear. Some of 

them—some of these reasons have already been mentioned. 

The first one is that we need this restriction to stop the supposed 

excess filing by student borrowers. There is no evidence that there 

was ever such excess filings. And in fact, there are safeguards in 

the bankruptcy system—many of them passed in 2005, when the— 

with bankruptcy reform—that can weed out such borrowers. 

The other reason we hear a lot is, well, we need this restriction 

to make private loans more available, sort of an incentive system 

though the bankruptcy system. 

Well, the first question I would ask is whether that is a legitimate goal for bankruptcy policy, because private loans are not financial aid. They are private credit products. But even if you consider this a goal, it hasn’t worked. Lenders have responded to the 

market, not to bankruptcy policy. 

The industry grew, frankly, very, very astronomically and exploded quite a bit prior to the 2005 change, and as was mentioned, 

the industry has contracted more recently, and yet there is still the 

restriction in the bankruptcy policy. So, again, the lenders are responding to the market incentives, not to the bankruptcy policy. 

Another rationale is that this will supposedly make the private 

loans less expensive. Well, this, too, has not happened. We have 

seen the most high-rate, other kinds of subprime private loans during the time that the bankruptcy restriction has been in place. 

The policy has also not improved college access. In fact, college 

enrollment is now growing even though private loans are less available. And the last thing I would say is, we certainly know that the 

policy has not made college more affordable. Tuitions have continued to grow. 

So we urge passage of this bill to help the struggling borrowers 

who I work for who, unfortunately—I wish they could all be here 

today with me, but I am here on their behalf. And what they did 

was they chose education; they deserve an opportunity for a fresh 

start. 

And I am happy to answer any questions later. Thank you very 

much. 

[The prepared statement of Ms. Loonin follows:] 

11 

PREPARED STATEMENT OF DEANNE LOONIN


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Mr. COHEN. Thank you, Ms. Loonin. I appreciate your statement 

and your timing your statement perfectly. 

The next witness will be Mr.—is it ‘‘Hupalo’’? Mr. Hupalo is managing director at Ramirez Capital Advisers—or Edvisers. Nice play 

on words, I guess. 


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Previously, he served as the CFO and senior executive vice president of the First Marblehead Corporation, one of the largest publicly traded student lenders. Prior to that, he was managing director in the education loan group at UBS, Salomon Smith Barney, 

and Manufacturers Hanover security corporation. 

Thank you, sir, and we welcome your testimony. 

TESTIMONY OF JOHN A. HUPALO, 

RAMIREZ CAPITAL ADVISORS, WESTON, MA 

Mr. HUPALO. Thank you, Mr. Chairman, Ranking Member 

Franks, the other Members of the Committee for the invitation to 

be here this morning. 

My experience with student loans began in 1978 as a borrower. 

And I am deeply indebted to the Congress for passing that legislation and giving first-time college aspirants like myself this opportunity. 

Although I did not initially plan for my professional career to be 

focused on helping others pay for college, it has. 

As you noted, my work in investment banking and at First Marblehead Corporation, I focused on helping both state agencies and 

not-for-profit companies around the Nation, as well as for-profit 

companies, structure a responsible private student loan program. 

The narrow, but important question you asked today—whether 

to permit the discharge of private student loans to bankruptcy—is 

another in a long line of policy issues which in isolation appear 

fairly simple, but are actually quite complex when considered along 

the broader spectrum of education lending policy. 

I understand the intended benefit of repealing non-dischargeability of private student loans, but I am very concerned that it will 

be counterproductive to the country’s shared goal of making college 

education more accessible to the greatest number of students possible. 

Although I am not an expert in Federal bankruptcy law, I do understand why non-dischargeability is a cornerstone of keeping private student loan interest rates affordable. Unlike most other 

loans, student loans are generally made to very young borrowers. 

At a time of borrowing, they have no job, no immediate prospect 

for a job, no credit history, and often no other assets. 

Furthermore, the loan products themselves are the most friendly 

consumer products in the marketplace. The loan may be paid over 

a relatively long period of 10 to 30 years, most not requiring any 

payment until a student separates from school, often many years 

after the first loan was made. There are no prepayment penalties 

for borrowers who wish to pay ahead of schedule, and there are opportunities for borrowers to stop making payments for a period of 

time even after the repayment period commences. 

This combination of borrower profile and product is very difficult 

for lenders to serve absent some other incentive to make the socially necessary loans. Non-dischargeability is one such feature. 

When lenders—be they not-for-profit state agencies, for-profit financial institutions, schools, or finance companies, or the Federal 

Government, for that matter—enter into the competitive marketplace, they share a few commonalities, including the requirement 

24 

that the loans make some amount of money, a risk-adjusted return 

for the lender. 

Admittedly, the nomenclature can be confusing. Even lenders 

with nonprofit charters and public purpose missions need to offer 

economically responsible, profitable products to be viable. This is 

true for the Federal Government loan programs, as well. 

In order to design such a product, the lender must assess the 

risk that a borrower will be unable to repay the loan in full. Private student lenders faced with borrower profiles and required 

product sets previously discussed create lower-cost loans as a result 

of the value of the non-dischargeability. 

There is no question that interest rates for all borrowers would 

have to increase in order to compensate for the increased risk if 

borrowers had the option to routinely discharge private student 

loans. 

Students are smart, but relatively immature consumers of very 

expensive goods and services, like a college education. Some would 

undoubtedly seek to exploit the narrow question of today’s discussion. With no assets to lose, an education in hand, why not discharge the loan without ever making a payment? 

I fear that borrowers just out of school would discount other risks 

and be saddled with unintended consequences for many years to 

come with a bankruptcy noted on their credit profile for 7 or more 

years that will hamper their ability to buy furniture or a car or 

other necessary consumer goods or even their first home on credit. 

In the long run, discharging this debt will not benefit these borrowers. 

The plight of these borrowers, however, should be properly addressed with existing law using the undue hardship exemption. 

Judges may benefit from a clearer explanation of congressional intent in this area and more specific criteria. 

I hope that this perspective is useful to you. I will make two 

other brief comments. 

First, the bill removes non-dischargeability retroactively. A retroactive re-writing of a contract strikes me as simply wrong. How 

could any transaction in our consumer society be taken seriously 

if the material terms could be retroactively changed by one party— 

or one party or another or the U.S. Congress? 

As I noted earlier, lenders initially priced loans based on the perceived risk and mitigants including the contract’s non-dischargeability. Furthermore, investors around the world who previously 

purchased these loans in the secondary market would no doubt be 

injured by retroactively negating the non-discharge provisions. Preserving the sanctity of this contract law should be paramount. 

Second, the legislation calls for separate treatment of dischargeability for for-profit and not-for-profit entities. Maintaining the 

2005 legislation’s goal of identical treatment of dischargeability for 

private student loans, regardless of the corporate structure, continues to make sense. 

Creating classes of lenders is inequitable and will lead to marketplace confusion. Students already face a dizzying array of 

choices when selecting a loan product. Adding the consideration of 

different bankruptcy options will only further confuse them. All private loans should be non-dischargeable. 

25 

In conclusion, I again commend the Subcommittee for taking on 

this hearing. Although the proposed legislation is no doubt well intended, I am concerned that it could increase the cost of all private 

student loans, reduce access for some borrowers, and increase the 

risk of unintended consequences for those who successfully discharge their loans. 

If the Subcommittee’s goal is to protect the most distressed borrowers, then I believe that clarifying the undue hardship standard—a current consumer protection lynchpin for student loan borrowers—is far preferable to undoing the 2005 legislation. 

Thank you. 

[The prepared statement of Mr. Hupalo follows:] 

26 

PREPARED STATEMENT OF JOHN A. HUPALO


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Mr. COHEN. Thank you, sir. Appreciate your testimony. 

Our next witness is Ms. Valisha Cooks. Ms. Cooks lives in Los 

Angeles, California, Kobe Bryant country, a single mother, and 

works full-time as an education coordinator at UCLA. She worked 

her way through Long Beach Community College and spent 1 

year—1 year at Chaminade University—I guess that makes you a 

silver sword or something like that—before finishing her B.A. at 

the University of Phoenix in 2007 with a bachelor’s degree in business management. She now has more than $80,000 in student loan 

debt, including about $53,000 in private student loans. 

Ms. Cooks, thank you for coming here and telling us your—giving us your testimony and telling us about your history. Thank 

you. 

TESTIMONY OF VALISHA COOKS, LOS ANGELES, CA 

Ms. COOKS. Thank you. 

Hi. My name is Valisha Cooks. When I took out private student 

loans, I had no idea that I was condemning myself to a lifetime of 

ruined credit, harassment by collection agencies, and the hopelessness of endless debt. 

I assumed that I would be better off with a college degree. But 

after college, my loan payments were $1,150 a month; $750 of that 

were private loans. That amounts to more than half of my takehome pay. 

I filed for bankruptcy, but that only resolved about $10,000 in 

other debt. Now, even though I have a good job, I can’t afford to 

pay all my bills in any 1 month, I go to food banks to feed my son, 

and I will never be able to afford a house. 

While my high school classmates were going to prom and playing 

sports, I was working full-time as a waitress and studying. I went 

to community college and 1 year of a private nonprofit university 

while working the whole time. It was a struggle, but I always paid 

my rent, paid my car note, and my other bills on time. I prided myself as being financially responsible. 

After some time away from college, the University of Phoenix 

was one of the few schools that would fit my work schedule. I took 

out as much as I could in Federal loans, but it wasn’t enough. The 

financial aid officer said I either had to take out private loans or 

drop out. I decided to stay in school. I really wanted to finish my 

education. 

He steered me to Wachovia for a private loan and told me that 

it was just like a Federal loan. I knew the money wasn’t free, and 

I only borrowed what I absolutely needed. University of Phoenix 

also told me that I would have 30 years to pay back the loans at 

a reasonable monthly rate, but that turns out it wasn’t true for the 

private loan. 

I paid the interest on my private loans while I was in school, but 

the interest rates rose by 0.5 percent to 1 percent every single 

month. That is when I realized that these were not the same as 

Federal loans, but it was too late. These loans seemed like the only 

way I could get my degree, and I thought that would make it 

worthwhile. 

I graduated with about $41,000 in Federal loans and $36,000 in 

private loans. In just 3 short years, the lender for my private loans 

31 

has tacked on more than $16,000 onto my principal balance, which 

are now $53,000. 

About 5 months after I graduated in 2007, I got a job at UCLA 

as an education coordinator. Shortly after that, I became pregnant. 

As I began to prepare for my maternity leave, my student loan bills 

became due. I immediately asked for forbearance or deferment. 

The lenders for my Federal loans accommodated me immediately, 

but Wachovia repeatedly lost my paperwork for the forbearance of 

my private loans. They made me fax and mail it over and over, saying it was misplaced or never received or missing a date. 

There was always an excuse. They were constantly transferring 

my calls and never let me talk to a supervisor. I couldn’t get the 

same person on the phone more than once. I spent months trying 

to get a forbearance with them until I thought it finally went 

through. 

I was diagnosed with preeclampsia and was on bed rest. My son 

was born 5 weeks early. He only weighed 3 pounds. Even though 

I thought I had my forbearance, the collection agents started calling me. Their calls started from 5 o’clock in the morning until 9 

o’clock at night. This was a nightmare, and the stress made it hard 

for me to focus on keeping myself and my son healthy. 

I had about $10,000 in other personal debt from credit cards, my 

car loans and medical bills. I decided to file for bankruptcy because 

I knew I could never pay that amount along with the mountain of 

student loan payments that I had. 

This was not a decision I made lightly. Filing for bankruptcy was 

expensive and, most of all, humiliating. I was raised to work hard, 

pay my bills, and be responsible. My mom worked three jobs so she 

wouldn’t have to be on welfare and raised me to be the same way. 

After working hard to pay my way on my own, I could never 

have imagined I would have to face such a painful choice. I attempted to include the private education loans in my bankruptcy, 

but they were not discharged. I had already paid more than $2,000 

for the attorney, and it would have cost even more for me to file 

for undue hardship, and my lawyer told me that I probably 

wouldn’t be able to get it, anyway. 

So after the bankruptcy, I still owed over $1,000 a month in student loans. I recently consolidated my Federal loans and signed up 

for the income-based repayment. My Federal loan payments went 

from $400 a month to $124 a month, and this is affordable for me, 

and I am so grateful that this program exists. 

But my private education loans are in default. They are asking 

for more than $600 a month, and the collection agency is unwilling 

to give me a forbearance or take a lesser payment. I send them 

whatever I can afford each month—usually about $120—but they 

still call and threaten to send my account for wage garnishment. 

They refuse to negotiate an affordable plan that will allow me to 

repay my loans. 

I live in constant fear that the hammer will one day drop and 

ruin my life and the hope for my son’s future. It is a scary, hopeless 

feeling. 

Bankruptcy is supposed to help manage my debt, but I am worse 

off now after my bankruptcy than I was before. My brother and I 

32 

tried to buy a house together, but they wouldn’t allow me to co-sign 

a mortgage because of my bankruptcy. 

I know how to build up my credit, but as long as I am in default 

on my private loans, that will never happen. I think part of the 

reason why my lender refuses to help me in any way is that they 

know I am stuck with the loan no matter what. 

I didn’t go to college to borrow a bunch of money and then shirk 

my responsibilities. I earned my degree to better my life and to set 

an example for my son, and I ended up bankrupt and still crushed 

by private loan debt with no way out, no light at the end of the 

tunnel, and no options. 

Thank you for your time. 

[The prepared statement of Ms. Cooks follows:] 

33 

PREPARED STATEMENT OF VALISHA COOKS


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Mr. COHEN. You are welcome, Ms. Cooks, and thank you for your 

testimony. 

Our final witness is Mr. Adrian Lapas. Thank you. He is currently the sole practitioner at Adrian Lapas in Goldsboro, North 

Carolina, primarily representing individuals in consumer bankVerDate Aug 31 2005 11:50 Jul 12, 2010 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 H:\WORK\COMM\042210\56069.000 HJUD1 PsN: 56069

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ruptcy cases and pursuing violations of consumer protection statutes. 

Prior to opening that firm, he practiced with William Strickland 

and Jackson, did criminal defense, P.I.s, and general legal matters. 

He also served in the United States Navy, and we thank you for 

your service. And proceed with your testimony. 

TESTIMONY OF ADRIAN M. LAPAS, ADRIAN M. LAPAS, PA, 

GOLDSBORO, NC, ON BEHALF OF THE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS 

Mr. LAPAS. Mr. Chairman and Members of the Subcommittee, 

good morning. And as the Chairman said, my name is Adrian 

Lapas. I am a bankruptcy attorney from Goldsboro, North Carolina. 

I appear today on behalf of the National Association of Consumer 

Bankruptcy Attorneys, or NACBA, for short. NACBA is the only 

national organization dedicated to serving the needs of consumer 

bankruptcy attorneys and protecting the rights of consumer bankruptcy debtors. 

I appear this morning in strong support of H.R. 5043, the Private 

Student Loan Bankruptcy Fairness Act, and I want to thank you, 

Mr. Chairman, for your leadership on this issue. 

Most Americans see a college degree as the single-most factor for 

financial success. But with skyrocketing tuition and related expenses, more and more students and their families must turn to 

loans to pay for that education. 

What borrowers are learning is that there is no margin for error 

when it comes to student loans. Students who choose public service 

or other low-paying careers or whose education does not provide 

the opportunities they expected to often begin their adult lives saddled with student loans they can’t pay. This creates a financial 

black hole from which they may never escape. 

I see these people in my office every day. And since the 2005 

bankruptcy laws gave private student loans preferential treatment 

previously reserved for government guaranteed student loans, 

there is little that I can do to help. These loans are simply not dischargeable, except under very extreme circumstances. 

Private student loans are huge profit centers for lenders, while 

students often find themselves loaded up with high interest rates 

and mountains of debt. Indeed, interest rates and fees on private 

loans can be almost as bad as credit cards themselves. And unlike 

Federal student loans, there is no limit on the size of private loans 

and no regulation as to their terms or cost. 

Like other private loans, student loans are made and priced 

based on risks. There is simply no public policy justification to 

treat this one type of private loan differently in bankruptcy, that 

is, by denying the discharge simply because of how the money is 

used. 

The discharge is the fundamental purpose of individual bankruptcy. It provides the unfortunate, but honest debtor a critically 

important fresh start. Exceptions to the bankruptcy discharge 

should be carefully considered and adopted only where necessary to 

further other important policy choices. Because private loans are 

usually made at market rates and on the same basis as other 

37 

loans, we see no reason to give them special treatment in bankruptcy. 

Some raise the illusory argument that, without the special treatment, private student loans will become more expensive and less 

available. Allowing discharge in bankruptcy will not affect their 

availability any more than allowing the discharge of credit card 

debt and other private loans resulted in the lack of these forms of 

credit. 

The private student loan industry was expanding rapidly before 

the 2005 amendment, and that expansion likely would have continued regardless of whether the exception to discharge can be included. And after the 2005 amendment, private student loans did 

not become significantly more available or offered at a lower interest rate than previously. 

This suggests that there would be a minimal, if any, change in 

lending if the law is returned to its pre-2005 status and private 

student loans become dischargeable once again. 

NACBA supports this reasonable and commonsense legislation to 

restore bankruptcy protections to private student loans. Borrowers 

can still be subjected to all the scrutiny and all the limitations imposed under the 2005 bankruptcy amendments, and we would urge 

this Subcommittee and, indeed, the full Congress to pass H.R. 5043 

and help individuals and families struggling under the weight of 

private student loans. 

Thank you for your time and your leadership, Mr. Chairman, and 

I would be happy to answer any questions this Committee may 

have. 

[The prepared statement of Mr. Lapas follows:] 

38 

PREPARED STATEMENT OF ADRIAN M. LAPAS


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Mr. COHEN. Thank you, Mr. Lapas. You are not related to the 

Lapas—is it Steve, the coach of UCLA? 

Mr. LAPAS. No, sir, your honor, different spelling. 

Mr. COHEN. Different—oh, he had two P’s, maybe? 

Mr. LAPAS. I believe he spells it—yes, he does have two P’s. 


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43 

Mr. COHEN. Yes. I just didn’t know if you and Ms. Cooks had 

something—anyway. Thanks. Now is the time for questioning. And 

being Chairman, you get to go first, and so I am first. 

And, Mr. Hupalo, let me ask you a question. You were at—I believe it was Marblehead. It is a bank, right? 

Mr. HUPALO. I am sorry, sir? 

Mr. COHEN. Marblehead. Is that a bank? 

Mr. HUPALO. First Marblehead Corporation owns banks, sir, but 

it is not a bank, no. 

Mr. COHEN. All right. Do those banks that they own issue credit 

cards? 

Mr. HUPALO. I am sorry? 

Mr. COHEN. Do you think those banks issue credit cards? 

Mr. HUPALO. No, sir, they do not. 

Mr. COHEN. They don’t? 

Mr. HUPALO. First Marblehead does not. 

Mr. COHEN. Do you know anything about folks that issue credit 

cards, though? 

Mr. HUPALO. Just as a general consumer I do. 

Mr. COHEN. Yes. And do you think that maybe they go on college 

campuses or used to go on college campuses and kind of encourage 

students to get credit cards and give them a towel or a radio or 

something like that to sign up to get a credit card? 

Mr. HUPALO. I am not an expert in what the marketing techniques are of different credit cards. 

Mr. COHEN. Let’s just assume—let’s assume that happened in 

America, that they went on college campuses. 

Mr. HUPALO. There are newspaper reports that that has happened, certainly. 

Mr. COHEN. Yes. And so if they did that, those students don’t 

have any better way—they are in the same situation getting those 

credit cards as they are in getting these loans that you all make, 

and they are out and don’t necessarily have a job or a bunch of capital to be surety or collateral for loans, and yet the banks are really 

looking for them as prime prospects. Should they be—have a different system written into the law to where those credit cards 

given to college students aren’t dischargeable in bankruptcy? 

Mr. HUPALO. Again, sir, I am not an expert in credit cards, but 

I have to tell you, I disagree vehemently with the idea that a credit 

card and student loan are comparable assets. 

Mr. COHEN. Why not? If what your argument is, that the reason 

they should be non-dischargeable is because these students go and 

they don’t have much money—and I know they are paid back over 

a long period of time—— 

Mr. HUPALO. Yes, sir. 

Mr. COHEN [continuing]. But they don’t have much money, and 

they don’t have a whole lot of collateral, a whole lot of assets, they 

just got some potential, that is the same thing with credit cards, 

isn’t it? How do you distinguish that? 

Mr. HUPALO. I will be glad, if I could spend a few moments talking about that, which I think is a really important question that 

you are raising, sir. The difference between a credit card and a student loan is fundamentally different. They share two common 

44 

traits. One is that they are credit underwritten. And the second, 

of course, is that they are unsecured consumer assets, debt, rather. 

Other than that, though, the similarities are vacant for me. 

First, on a loan, lenders ask to make a commitment that the borrower asks for on day 1 for some period of time, perhaps 20 or 30 

years in the future. 

When a student applies for a credit card, the credit card lender 

will say, based on your credit profile, I will lend you—or I will 

make a line of credit available to you for $500 or $1,000 or whatever it might be, but they can limit that on that very first day. A 

student—a borrower doesn’t have a say in how much credit card 

exposure they get. The bank sets that. 

The second, sir, is that there is a long-term commitment, again, 

on a student loan or any loan. The credit card is a short-term commitment. And if the borrower has difficulty paying, if they miss a 

payment, the credit card companies have opportunities to mitigate 

their risk that a student loan issuer does not have, a bank, and 

that specifically is the idea that they can stop the credit. 

So if I have a $5,000 limit on my credit card and I am delinquent, I am going to get a note from the credit card company saying, ‘‘Your limit is now $2,000 or $1,000,’’ or whatever that balance 

might be, ‘‘and I am going to take other actions to try and collect 

that debt more rapidly.’’ 

Mr. COHEN. Slow down for a minute, because you are in my 5 

minutes, and we have—and I appreciate it. But you sound more of 

an expert on credit cards than you started out. You know, and so 

obviously, you know, I hit a question that you were prepared to answer, so you boned up on the subject. 

Mr. HUPALO. Well, I think a lot about these things, sir. 

Mr. COHEN. What if we changed the credit card law and said 

that they could pay it back over a longer period of time and took 

that into consideration, because they were just right out of the, you 

know, nest and didn’t have any job and income and stream and a 

home and all those things? Would then—should they be dischargeable? 

You know where I am getting at. Why should—why are your 

debts different from all other debts, going back to recent holidays? 

Mr. HUPALO. I can talk a little bit more about that than what 

you should do with regard to dischargeability of credit cards. 

Mr. COHEN. Good. Let’s move on to that subject. 

Mr. HUPALO. So I think the answer, sir, is that the student loan 

is a unique asset. It has all the attributes that we have talked 

about. And lenders do not have an opportunity after that first loan 

is made to go back and work with a borrower on these other programs of reducing their risk. 

The loan has been made. And, believe me—I think Mr. Franks 

said it correctly—I have been in the industry a long time, and 

there is deep care for borrowers across the country. And if you look 

at the norm that the average borrower has a good experience with 

a private student loan, and I am afraid that the atypical experience 

is the one that we talk more about. 

Mr. COHEN. Ms. Loonin, just like ‘‘Saturday Night Live’’ when 

they had, you know—respond. 

45 

Ms. LOONIN. Well, I mean, I think that, first of all, the first point 

about—you know, comparing to credit cards, really, a student loan 

is actually much more like a credit card, other than this sort of 

open-end versus close-end argument, and that is that the lender 

has the ability to assess, a reasonable ability to repay, and underwriting at the outset, whether it is a student loan or whether it is 

a credit card, and choose to evaluate the risk at that point, and 

that is what the private lenders are doing now. 

They are making these loans much—every loan has some element of risk, but they are taking a lot of the risk out of them by 

requiring underwriting and other things. And that way there is 

less likely to be the same level of write-offs as others. 

So in that sense, there is nothing really unique in whether—you 

know, in what the incentives are for creditors to make the loans. 

The private loan creditors are making—or were making a lot of 

money on these loans for a long time, so obviously they had the incentive to make them. 

Mr. COHEN. And what about the—did you all characterize some 

of these possibly as kind of subprime? 

Ms. LOONIN. Absolutely. I mean, there is every—and we did a report a couple of years ago which is on our Web site—welcome to 

look at it—but all of the features of subprime lending, including 

the failure to assess reasonable ability to pay, so poor underwriting, irresponsible lending, high fees, origination fees up to 10 

percent, APRs up to—all variable rate, 15, 20 over that percent. 

Basically, the most vulnerable borrowers are the least likely to 

be able to repay the loans, and they are the ones who are hurting 

the most. 

Mr. COHEN. And in essence, our system where we have this nondischargeability in bankruptcy, Ms. Cooks has got nothing—she 

has got no relief, does she? What is Ms. Cooks’ relief? Any at all? 

Ms. LOONIN. Well, that is—and that is what I mentioned. What 

I do—call the creditor and see what they will do. And she mentioned that a little bit with Wachovia, that she had trouble reaching them in the first place. I am able to reach them. I am not here 

to complain about that. I have contacts with a lot of the creditors. 

They are respectful. But they look at my clients’ profiles and they 

say, ‘‘There is nothing we can do for them.’’ 

Mr. COHEN. And is there nothing they can do for them? I mean, 

you can’t discharge in bankruptcy, so what can you do? I mean, you 

can—you can just pay it off the rest of your life or you can slit your 

wrists? 

Ms. LOONIN. Well, there is something the creditors can do. They 

can choose to work with the borrowers. And I think, frankly, in 

some cases, that might be even worth their investors—worth—you 

know, might make some value, because that way—instead of writing them off and getting nothing, they might be able to work out 

some agreements and be more flexible, modify the terms, do some 

things where maybe there is some possibility of getting some cash 

flow from these borrowers. 

In some cases, the loan is so expensive it was destined to fail, 

there really is nothing to do. 

Mr. COHEN. With the indulgence of the Committee and the prerogative of being Chairman, I am going to ask Mr. Hupalo, is there 

46 

some type of a modification of the law that you could see that 

would be beneficial to the student and yet leave your—your business ventures whole? 

Mr. HUPALO. Yes, sir, I think there is. And one of the recognitions that we all should have is that the private student loan industry has really developed over the course of maybe the last 5 to 

7 years in significant volumes and that we have gone through an 

interest rate cycle and a—and a global financial calamity that really has changed the face of finance, and you all know that as well 

as anyone. 

The specific answer to your question, I think, is that the market 

will evolve. I think that there are a lot of lessons learned from the 

mistakes that were made by lenders and by borrowers, frankly, 

over the course of the last 5-or 7-year period, and I think there will 

be financial innovation that will come out that will make these 

products more accessible, the underwriting criteria will be better, 

the data that is in place in the pools now will inform how we keep 

borrowers in a position where they can make comfortable payments 

over time. 

One thing that I think about is that—like, in the—when you take 

your vacation, you can buy trip insurance. Perhaps the market will 

evolve to a place where lenders will offer borrowers upfront opportunity to buy insurance against the loss of a job for a period of time 

or against the bankruptcy filing or something of that nature. 

But my point before, sir, was that there are borrowers on both 

ends of the spectrum—those who take these private student loans, 

get their degrees, and repay them very quickly. There are other 

borrowers, unfortunately, on the other side who have the difficulties as we heard today, and this is heartbreaking testimony to hear 

these, but those are—both borrowers are atypical. 

The students and the majority of them in the middle can take 

private student loans, they go to school, they get their degrees, 

they get a job, and they make their repayment on time. The data 

shows that the overwhelming majority of these borrowers have successful experiences with private student loans, and I think the 

market will help other borrowers as time goes on. 

Mr. COHEN. And, Mr. Hupalo, I am going to go on a little bit 

more, but your answer basically is to what Mr. Franks would have 

normally been asking you, about the free market. What I asked 

you, is there legislation that you think could be proposed or offered 

that might remedy some of these problems? 

Mr. HUPALO. I can’t offer any comment on that, sir. 

Mr. COHEN. You could. You just don’t—you either don’t have 

any—you don’t have—you don’t have a thought on it? 

Mr. HUPALO. I haven’t thought about it, sir. 

Mr. COHEN. Okay, thank you. 

Mr. HUPALO. Thank you. 

Mr. COHEN. I will yield to Mr. Franks, and thank you, sir. 

Mr. FRANKS. Well, thank you very much. 

And as always in these discussions, you know, there is a desire 

on the part of policymakers to try to create the kind of atmosphere 

that will incent people and the system to—to allow people like Ms. 

Cooks to gain a college education. And that is something I desperately want to see happen. 

47 

The challenge is that oftentimes with legislation like this we 

never take into consideration that—Ms. Loonin was correct, that 

sometimes people make these loans because they believe they are 

going to make some money doing so. And if you take that out of 

the equation, they will simply stop making the loans. And the result will be the next person, like Ms. Cooks, that comes along will 

not be able to gain a college education. 

And I—it is always hard as a conservative to make those arguments, because it seems like it lacks the heart, but I really believe 

that it is the most heartfelt argument that I can make. 

If we want to make this work, we cannot repeal the laws of 

mathematics. And the idea that we will, you know, wipe out the 

private industry in favor of government and the nonprofit industry, 

we don’t realize how much those other two entities depend upon 

the private market. 

If the private investment, the private individuals, private endeavors fail, then government will have nothing to give anyone 

anything, and certainly nonprofits are largely dependent upon the 

private market, as well. 

So my concern is that we are going to be successful here at some 

point in chasing private capital out of the market. And when we 

do that, we will not like the result. 

So, Mr. Hupalo, the total volume of private student loans 

dropped 52 percent for the 2008-2009 school year. And according to 

the Wall Street Journal, this is because private lenders—private 

student lenders are having a difficult time raising the capital from 

investors necessary to make student loans. 

Could you explain why it is likely that H.R. 5043 will both further decrease the availability of private student loans and likely 

cause lenders to raise the interest rates they charge, like happened 

with credit cards when we messed with credit cards? 

Mr. HUPALO. Yes, sir. Thank you. And I touched on it briefly in 

my verbal comments earlier and the written testimony I provided, 

and that is that the—although the recent experience in the—in the 

credit markets has masked, I think, a lot of the underlying tendencies that occur with consumers, because interest rates have 

been at historic lows, it is hard to make a judgment looking from 

2005 to 2010 to have a cause and effect of what the 2005 legislation 

did to consumers during the period of 2005 to 2010, because it was 

just so absent, particularly the second half of that period. 

And so my concern, though, sir, is after working in this industry 

for quite a long time, is to know that as a risk-based product, 

which this is, and it is risk-based Federal Government loans or 

risk-based loans, as well as a private loan, as well as loans that 

are offered by not-for-profits, at the end of the day, you need to 

have a positive return, as you said, in order to offer additional 

loans. 

If it comes to a point where access is denied because cost is too 

high, or the credit criteria become too tight that borrowers are not 

able to avail themselves to this kind of a loan, then the reality is 

that there will be a reduction in access to school and borrowers will 

not be able to go to the school that they choose, but they may have 

to go to another institution. 

48 

So I think there are multiple potential effects that would be negative if this were to go forward. 

Mr. FRANKS. Well, obviously, I agree with that and, in my opening statement, said that H.R. 5043 seems to be an overly broad attack on all private student lenders, rather than a nuanced approach aimed at abusive lending practices. So I guess I would ask 

you again, Mr. Hupalo, in your experience, is the private student 

lending industry so dominated by unaffordable loans that we need 

bankruptcy legislation that affects the entire industry? 

Mr. HUPALO. Sir, thank you for the question. And as I tried to 

indicate in my response to the Chairman earlier, the—when you 

look at the population, a spectrum of private student borrowers and 

the spectrum of private student lenders, you realize that it is quite 

wide and it is broad. 

And the reality is that, if you go to the norm, take away the tails 

of very, very successful student who repays immediately and the 

poorer borrower who has a multitude of very unfortunate incidents 

and circumstances as we heard this morning, those out of the equation, the sweet spot, if you will, of the data tells you that the borrowers are successful, they can repay these loans if they are created properly, they are able to achieve their dream of a college education as a result of the prudent use of private student loans. And 

so I don’t believe that every student should have access to a private 

student loan. 

Mr. Cohen talked about the scholarship program in Tennessee. 

They should take advantage of those. They should take advantage 

of all the other grant opportunities, educational funding that comes 

from the school, then the Federal loan programs, which are absolutely essential. And then if they need more money and they want 

to go to that school, a private student loan would be the right place 

for them to shop. 

Mr. FRANKS. All right. Well, thank you, Mr. Chairman. Thank all 

of you for being here. 

Mr. COHEN. Thank you, sir. 

I now recognize Mr. Johnson for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Ms. Loonin, you referred to these private students loans as 

subprime lending. Would it be fair to also characterize these loans 

as predatory loans in a predatory lending atmosphere? 

Ms. LOONIN. Yes, I mean, not all of them, but certainly that was 

a segment of the industry, and I would say, mainly because, similar to what we think of as the predatory mortgage loans, a lot of 

these loans were made not so much for the purpose of what is best 

for the borrower, but for the purpose of, how soon can we package 

them and get them sold to investors? 

Mr. JOHNSON. Okay, now stop right there. 

I wanted to ask that question—and I will ask it of Mr. Hupalo. 

Isn’t it true that these private student loans are bundled and then 

sold as securities on Wall Street? 

Mr. HUPALO. Some of them and perhaps a majority of them were, 

but no longer as a result of the credit crisis. 

Mr. JOHNSON. And that is why the lending activity declined in 

2008 and 2009, isn’t that correct? 

Mr. HUPALO. Yes, sir. That was a large component of the decline. 

49 

Mr. JOHNSON. And, in fact, it may have even been a large component of why our economic system was on the verge of collapse in 

October of 2008. Isn’t that a fact? Yes or no? 

Mr. HUPALO. No, sir, I don’t think—I don’t think that is as it is 

a fact. 

Mr. JOHNSON. Okay, well, let me—let me move forward then, 

and I am sure that you would not disagree with that, Ms. Loonin, 

but let me talk with Ms. Cooks. And I think you are the American 

success story in terms of working your way through high school 

and then through college. 

And tell me, did you see an advertisement for your private student loan or did someone steer you to the private lender? 

Ms. COOKS. I was steered toward Wachovia specifically. There 

wasn’t—— 

Mr. JOHNSON. And who—— 

Ms. COOKS. The financial aid officer at the University of Phoenix, 

there wasn’t like a paper given to me with a bunch of options that 

I could shop for the best rate. There was one person on the list, 

and that is who we used for our alternative loan. 

Mr. JOHNSON. Now, do you know whether or not there may have 

been a connection between the loan officer and the lending institution? 

Ms. COOKS. I am sure that is a possibility. I personally don’t 

know. But—— 

Mr. JOHNSON. But you know—you did not know at the time that 

you took this loan, either, I suppose. 

Ms. COOKS. Right. 

Mr. JOHNSON. And so you were steered to one lender. You were 

told that you were not eligible for a—— 

Ms. COOKS. There were no—— 

Mr. JOHNSON [continuing]. Federal student—— 

Ms. COOKS [continuing]. Scholarships or—I applied for all the 

other things. 

Mr. JOHNSON. Did that same student loan official tell you that 

you were disqualified? 

Ms. COOKS. Actually, no, they didn’t even give me the option. It 

was something that I researched on my own, and I was denied, 

they said, based on need base, that other people needed it more 

than I needed it, and there wasn’t any other—— 

Mr. JOHNSON. So nobody told you that? That was just your 

own—— 

Ms. COOKS. Right. 

Mr. JOHNSON [continuing]. Finding? It could have been right or 

could have been wrong. 

Ms. COOKS. I have always kind of researched a lot of things on 

my own. 

Mr. JOHNSON. Yes, well, you sound like a very smart young lady. 

Mr. Lapas—well, let me go—before I ask you, let me go back to 

Mr. Hupalo and ask whether or not private lending of student 

loans is restricted to only nonprofit entities? 

Mr. HUPALO. It is not restricted, sir. 

Mr. JOHNSON. So a for-profit school or a nonprofit school would 

qualify to—for the exemption under current bankruptcy law as a 

private lender? Is that correct? 

50 

Mr. HUPALO. The loan, sir, would not qualify, that is right. 

Mr. JOHNSON. So this means that, if I decided to go out and set 

up the Hank Johnson Bible College in a one-room office, I could be 

qualified as a student—as a private student lender? 

Mr. HUPALO. You would need the capital, sir, to do that. 

Mr. JOHNSON. What kind of capital would I need? 

Mr. HUPALO. You would raise capital privately, perhaps. 

Mr. JOHNSON. But I could open up a non-accredited institution 

and still get the benefit of the exemption under current bankruptcy 

law? 

Mr. HUPALO. No, sir, you would have to be a regulated lender. 

So in your example, sir—I understand what—— 

Mr. JOHNSON. Yes, I could be like a loan broker, let’s say, and 

write the loan on behalf of, let’s say, Wachovia, and, boom, have 

Wachovia as the registered entity that is making the loan officially. 

Mr. HUPALO. You could ask Wachovia to make loans available to 

your students. Yes, sir, you could. 

Mr. JOHNSON. This sounds like a giant cesspool of muck that contributed to a financial system decline, and there are even people 

who say that Wall Street is doing—is back to doing the same thing 

that it was doing prior to the meltdown, and perhaps the private 

student loan industry is a major contributor to this. 

So I believe that this legislation is needed and necessary. Mr. 

Lapas, I am so sorry that I didn’t have a chance to ask you some 

questions about this. 

Mr. COHEN. Mr. Johnson, you may have that opportunity. I am 

going to ask you to take the Chair, as I have got some business 

to attend to. And with the prerogative of the Chair, before you recognize Mr. Coble, you might be able to ask another question, but 

I appreciate it. I could see Rahm Emanuel channeling through you, 

and I appreciate your ability to ferret that out. 

Mr. JOHNSON. Thank you, sir. 

Mr. COHEN. So if you would take the Chair for a minute, please. 

Mr. JOHNSON. [Presiding.] All right. We will next go to Mr. Howard Coble, the Ranking Member of the Courts and Competition 

Subcommittee of the Judiciary Committee. 

Mr. COBLE. Thank you, Mr. Chairman. Good to have you all with 

us, especially my fellow Caroline from eastern Carolina. Mr. Lapas, 

good to have you here. 

Mr. Hupalo, will lenders shy away from originating private student loans if the borrower can file for Chapter 7 after graduation 

and fully discharge the debt? 

Mr. HUPALO. Sir, they will either change their credit criteria or 

likely increase the rate charged to offset the increased risk of that 

discharge of—in bankruptcy. 

Mr. COBLE. Mr. Lapas, assuming for argument’s sake—and I am 

not suggesting this one way or the other—but assuming for argument’s sake that private student lenders are engaged in predatory 

lending practices, is not amending the bankruptcy code an indirect 

way to get at predatory student lending? 

Mr. LAPAS. Mr. Coble, I really cannot speak to that. 

Mr. COBLE. Pull the mic a little closer to you, Mr. Lapas, if you 

will. 

51 

Mr. LAPAS. I cannot speak to that. I do not know, but amending 

the bankruptcy code for debtors that are in financial distress would 

be the most efficient means of dealing with that debt, much as in 

Ms. Cooks’ situation, as opposed to attempting some type of private 

litigation to address any predatory practices on behalf of the student lenders. 

Mr. COBLE. Let me ask you this, Mr. Lapas. Am I pronouncing, 

Mr. Lapas, that correct? 

Mr. LAPAS. That is correct, sir. 

Mr. COBLE. Some of the testimony today is that private student 

loans are more akin to credit cards. Of course, we all know the fundamental difference between the two. Credit cards, of course, are 

issued based upon the current ability to repay, whereas the student 

loans are based upon future ability to repay. What steps outside of 

bankruptcy can the Congress take to make private student loans 

more like Federal student loans and less like credit cards, if you 

know? 

Mr. LAPAS. I would not hazard a guess on that. 

Mr. COBLE. Would any of the members of the panel have—— 

Mr. LAPAS. Perhaps Ms. Loonin would be more appropriate to answer that. 

Mr. COBLE. Okay. 

Ms. LOONIN. Sure. I think Federal student loans really are truly 

much more like financial aid. And the government guarantees payment of them, so I suppose that, you know, is something that could 

be done, but I think that is exactly—that is not a step we would 

want to take, because, you know, the market—the point about the 

Federal loans is it is not just that the government guarantees 

them, but there is also strict regulation of rates and terms and all 

the flexible options out there. 

Mr. COBLE. I thank you for that, Ms. Loonin. 

And let me ask any of the panel members this. Are you all concerned that making private student loans unconditionally dischargeable in bankruptcy may negatively affect access to future 

loans? Does anyone have any concern about that one way or the 

other? 

Ms. LOONIN. No, because there is no evidence that that is what 

the lenders are responding to. As we said, they are responding to 

market incentives. And to the extent that private loans are less 

available now, we consider this a welcome market correction, because it is primarily the very high rates, predatory loans that have 

astronomical write-off rates, those are the ones that are being 

made less now. 

And the other, more responsible lending is continuing to go on, 

which, frankly, responsible, prime, private lending is not where the 

problem is. We are—there are some lenders that are trying to step 

in now to fill in the gap, so I am not saying that the situation is 

going to stay, but that is the way it is right now. 

Mr. COBLE. Mr. Hupalo, want to weigh in? 

Mr. HUPALO. Yes, I would have concern that there would be access problems. And, again, the idea of trying to document this over 

the last 5-year period is very difficult, given all the market turmoil 

that has occurred. 

52 

Mr. COBLE. Mr. Lapas, want to insert your oars into these waters? 

Mr. LAPAS. Yes, sir, but also, over the last 5 years, it has only 

been for the last 5 years that private student loans have been nondischargeable. Prior to that time—which would be a relevant time 

period to look at—what has been the access to private student loan 

lenders while those debts were dischargeable in bankruptcy? Just 

to reiterate, it is only since 2005 that private student loans were 

non-dischargeable in bankruptcy. 

I do not have that concern that access would not be available. 

And as Mr. Hupalo indicated in his prior testimony, there is a 

small tail of student borrowers that are not paying, so that that 

sweet spot, the middle, where most borrowers do pay, is still going 

to provide the impetus for that access to capital. 

I believe the statistics would show—and, again, Ms. Loonin may 

be more expert than I on this matter—but that the amount of debt 

even considered in bankruptcy for student loans—private student 

loan lenders is miniscule in respect to the overall market. 

Mr. COBLE. Ms. Cooks, you want to weigh in on this? 

Ms. COOKS. On your previous question that you asked, what do 

I think should be done, possibly just options, because like I said 

now, I don’t really have very many options. With the Federal loans, 

of course, I have the IBR, the income-based repayment option. Now 

I send my private loan lenders what I can afford. 

So if there was a similar type of option with the private loans, 

where they were forced or held to the same standard as the Federal loan, to give me an affordable monthly payment or even a 

length of period that I could defer the payment, and continue to 

pay interest, or just any type of options. 

Mr. COBLE. I got you. 

Ms. COOKS. Because now I continue to pay my loan even though 

they are in default. I just can’t afford to pay what they are asking 

me to pay. 

Mr. COBLE. Thank you, Mr. Chairman. I see my red light has illuminated. Mr. Chairman, one final point. And I don’t think anybody has mentioned this. 

One of the—maybe the appropriate word might be culprit—is the 

increasing cost of education. That is one of the—I don’t—I don’t 

have a handle on that, but if you all do, meet me after class. I will 

be glad to listen to you. 

Good to see all of you. Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you, Mr. Coble. 

Next we will hear from the gentlewoman from California, Ms. 

Judy Chu. 

Ms. CHU. Thank you, Mr. Chairman. 

I would like to ask questions pertaining to this premise that 

there would be a widespread abuse of bankruptcy should the law 

be changed. And, of course, we know that in 2005, Congress limited 

the discharge of private student loans through bankruptcy, only for 

when the debtor could show undue hardship, and the change was 

made because of this premise of widespread bankruptcy should private loans be dischargeable. 

So, Ms. Loonin, what do you believe about—what do you think 

about that? I know that there was a recent nationwide study which 

53 

shows us that nearly half of all debtors seeking to discharge education debt through bankruptcy had incomes at or below 200 percent of the Federal poverty level. Would there be widespread abuse 

of bankruptcy, should this occur? 

Ms. LOONIN. Yes, thank you. That was the original premise for 

the Federal student loan non-dischargeability without even evidence that there was that sort of heightened filing by students in 

the Federal loan program. There is certainly no evidence that that 

is true in the private loan program, so it is based on a false 

premise, and I think really, you know, missed—or, you know, 

mischaracterized the reasons why people file for bankruptcy. 

The people file for bankruptcy, as the evidence shows, because 

they have to, because they don’t have income or because something 

has happened in their life, a medical situation or something like 

that, that requires them to get this fresh start. 

So, again, I don’t think that that is something that should be 

concerned. We can—Ms. Cooks spoke to the consequences of bankruptcy, the effect on the credit report, the fact that this stays on 

your credit report for 10 years. The other consequences of bankruptcy are things that I hear from my clients every day when they 

consider whether they even want to think about filing for bankruptcy. 

Ms. CHU. Mr. Lapas, what was the situation prior to 2005? Was 

there widespread abuse of this process with student loans? 

Mr. LAPAS. With regards to private student loans? 

Ms. CHU. With regard to private student loans. 

Mr. LAPAS. Not in my—— 

Mr. JOHNSON. If you would put your mic on, also. 

Mr. LAPAS. Not in my day-to-day practice. I rarely saw instances 

with private student loans where the debtors were attempting to 

in essence game the system. They all had serious financial issues 

that needed to—needed to be addressed. 

Most of the time, the precipitating financial problem that caused 

them to seek bankruptcy assistance in the first place was not the 

student loan, but that compounded it. And in discharging a private 

student loan prior to 2005, it would help the debtors get back on 

track, but it was not the main factor most times. 

And, again, prior to 2005, if there was someone with student 

loans, significantly, they were the government guaranteed student 

loans or loans issued by nonprofit, which were non-dischargeable, 

anyway. 

Ms. CHU. Current law says that private student loans can’t be 

discharged unless there is an undue hardship. What is the difficulty in considering that approach? 

Mr. LAPAS. Undue hardship is largely defined as—and particularly with regards in my circuit, the Fourth Circuit, as a certainty 

of hopelessness. Not only do you have to show that you can’t afford 

to make the payments, but that you have to show that you are not 

going to be able to make the payments for an extended amount of 

time. 

Recently, a Fourth Circuit case came down where the debtor was 

offered—on Federal student loans—an income-based repayment 

plan that would extend for 25 years, 25 years, and that was considered a reasonable accommodation. And because she declined that 

54 

25-year-based repayment plan, the court held that we are not going 

to discharge your student loans. Again, these were the Federal student loans. 

Also, one of the difficulties is the cost to the debtor of even attempting to get the debt discharged in bankruptcy. And, again, 

going back to my circuit, the Fourth Circuit, another case recently 

was handed down where the debtor filed an adversary proceeding 

to have her loans discharged in bankruptcy court. She won in 

bankruptcy court. The creditor appealed it to the district court. The 

district court remanded it back to bankruptcy court. 

They held another hearing. The bankruptcy court ruled in favor 

of the debtor. She won again. It goes to the district court. She wins. 

It was appealed to the court of appeals on the Fourth Circuit. She 

loses. 

So you have got a 3-year timeframe in which not only is she 

hanging in limbo, but she is incurring additional attorney’s fees, 

other costs associated with it. She wins all the time, up until the 

Fourth Circuit, and she loses, in another case where the debtor 

wins up through the Fourth Circuit and loses yet again. 

Most debtors cannot afford to do that. They cannot afford to take 

that chance. They cannot afford to incur the attorney’s fees to do 

that. Or the attorney just takes it for free. 

But it is not only just for free in that the attorney will be advancing significant costs of their money to pursue the case further. 

There are significant hurdles with that undue hardship. Again, 

we are not here to discuss undue hardship. It is just changing the 

bankruptcy code to allow for the discharge of private student loans. 

But, again, that is a significant factor. 

Prior to 2005, government loans—well, private student loans 

were dischargeable. After 2005, they just simply are not. The 

undue hardship does constitute a significant hurdle. 

Ms. CHU. Thank you. 

Mr. JOHNSON. We have been joined, ladies and gentlemen, by my 

good friend from the great state of Ohio, Congressman Jim Jordan. 

Mr. JORDAN. Thank you, Mr. Chairman. And I apologize for missing your testimony. Actually, I went back to my office to meet with 

the Ohio State Bar Association. 

Mr. Hupalo, will this change fully dischargeable private student 

loans? Isn’t it just going to add to the cost of people who—future 

borrowers, I mean, when lenders have to assume this risk, they are 

just going to—it is just going to mean students who want to borrow 

money to pay for their college are going to have pay more in the 

future? 

Mr. HUPALO. Yes, sir, thank you for the question. And perhaps 

we should draw the line a little finer. 

Prior to 2005, private loans made by not-for-profits were non-dischargeable. So the 2005 legislation put all of the loans made by forprofit lenders and not-for-profit lenders on the same footing, so 

there is some equity put into the system at that point. 

To your question, sir, yes, we talked before about the tails of students who are able to pay and those who are unable to pay, and 

then the large majority in the middle. I believe, sir, that the cost 

will increase for all borrowers in the—and particularly those that 

will bear the costs in the middle, those who are paying on time. 

55 

Mr. JORDAN. Okay, let me ask you a slightly different question. 

The provision put in the health care bill, which, you know, vastly 

moved the government direct lending in the student loan market, 

do you think that will lead to greater defaults? And, I guess, country boy from Ohio is thinking, if a student and a family are getting 

a loan from their local banker or someone they know, less likely 

to default than if they are getting it from the—you know, the big, 

bad Federal Government, and somewhere else. 

Do you think—so do you think the change made in the health 

care bill is actually going to mean more defaults from students as 

we move forward? 

Mr. HUPALO. Sir, I don’t—I can’t really give you a view on that. 

But I do know that, you know, there is a lot of language—relative 

language that we talked about this morning about loans being 

riskier or costlier, and trying to quantify that is sometimes difficult. 

But what should be known is that the Department of Education 

released in December 3-year default rates. This is now a change in 

their methodology that shows that the 3-year default rates for Federal loans are in excess of 11 percent, with some of them as high 

as 20 percent. 

So when we talk about private student loan default rates and 

Federal Government student loan default rates, I want to make 

sure that we are on an even footing and to try to identify where 

those relative measures are and what they are. 

For instance, you know, we talk about cost of loans. Today’s interest rate environment leaves it such that borrowers with variable 

rate private loans may, in fact, be paying less than they would pay 

on their Federal Government fixed-rate loan. It is the nature of the 

interest rate environment. 

Mr. JORDAN. Right. 

Mr. HUPALO. But all these questions need to be answered. 

Mr. JORDAN. Yes. Is it fair to conclude, as I have, that this—the 

bill we are talking about today, the action that was taken in the 

health care bill, that the current majority in Congress and this Administration simply want the government to do it all when it comes 

to student loans? 

Mr. HUPALO. I believe that is right. 

Mr. JORDAN. Okay. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you, sir. 

Next, the distinguished gentleman from the great state of Virginia, Mr. Bobby Scott. 

Mr. SCOTT. Thank you. Some of this may be a little bit repetitious, but let me just get some things on the record. 

Mr. Lapas, the private loans and direct Federal loans are both 

equal in terms of bankruptcy, both non-dischargeable, except in 

hardship. Is that right? They are treated equally? 

Mr. LAPAS. That is correct. 

Mr. SCOTT. In bankruptcy. Now, on the Federal loans, you can 

get deferrals for many reasons, like public service, continuing your 

education, and things like that, is that right? 

Mr. LAPAS. That is correct. 

Mr. SCOTT. Can you do that on private loans? 

56 

Mr. LAPAS. Generally no. That would be up to the individual private student loan lender and whatever individual policies they may 

have in place. It would certainly be in the lender’s discretion. 

Mr. SCOTT. Now, in Federal loans, are you entitled to an incomebased repayment plan that is a percentage—a reasonable percentage of your income? 

Mr. LAPAS. That is my understanding, yes. 

Mr. SCOTT. And is that available under the private loans? 

Mr. LAPAS. Again, it would be in the discretion of the private 

lender. 

Mr. SCOTT. But you are not entitled to it? 

Mr. LAPAS. But you are not entitled to it. 

Mr. SCOTT. Mr. Hupalo, can you—you were talking about default 

rates. What is the default rate on the public loans and the private 

loans? 

Mr. HUPALO. I stammer, sir, because that is a very broad question. I think you are looking for a very narrow answer. You can 

look, you know, generally across default rates, and they vary by 

lender, by borrower type, by school type, so I could perhaps give 

you a better answer in the future. 

Mr. SCOTT. Is there a difference in interest rate charged? 

Mr. HUPALO. Yes, there is, sir. 

Mr. SCOTT. What is the—what is the difference in interest rate 

charged between public and private loans? 

Mr. HUPALO. Generally, the public Federal Government loans are 

fixed-rate loans, and their percentage varies. The answer for private-sector loans, the bank-type loans, are variable rate. When the 

variable rate is based on an index and then based on the creditor’s 

borrower, there is an addition to that index called the spread, and 

that varies. 

Mr. SCOTT. What are some of the kinds of interest rates that private loans are charging now? 

Mr. HUPALO. Private loans currently can charge—you know, for 

instance, I can tell you, based on some of my experience and knowledge of some of these portfolios, something on the order of LIBOR 

plus 4.75 percent or 5 percent, which in today’s interest rate environment would be somewhere on the order of 5 percent to 5.25 percent. 

Some of those—that is for—that is an average. And, again, we 

need to be careful, because there is certainly loans that are LIBOR 

plus 10 percent, and there are loans that are LIBOR plus 3 percent, so we need to be careful about our language. 

Mr. SCOTT. Ms. Loonin, for those that are in trouble, what kind 

of interest rates are they being charged? 

Ms. LOONIN. Well, I see a wide range, but for the borrowers I see 

who are in the most trouble, the interest rates are usually, again, 

variable, but at least 10 percent, and then generally as high as— 

I think the average in the study I did was 11.5 percent, but I have 

seen, as I have said, over 20 percent, as well. 

Mr. SCOTT. Ms. Hupalo, in 2005, the change was made to make 

private loans, which were then dischargeable, non-dischargeable, 

except for hardship, is that right? 

Mr. HUPALO. Yes, sir. 

Mr. SCOTT. Did that apply to existing loans? 

57 

Mr. HUPALO. I don’t believe so, although I am not an expert on 

that. 

Mr. SCOTT. Ms. Loonin, did it apply to existing loans? 

Ms. LOONIN. Yes, it was for cases filed after that date, correct. 

Mr. SCOTT. Okay, now, does anybody have any evidence as to 

whether or not the interest rates went up, the default rates went 

up, or anything good or bad happening after the 2005 change to 

private loans? 

Ms. LOONIN. I have some information—that Sallie Mae, for example, the average margin on their private student loans continued 

to increase, starting from before the change and then through 2007 

after the change, as well. 

Mr. SCOTT. So that you could not—the change did not have an 

effect on interest rates or default rates? 

Ms. LOONIN. Correct. 

Mr. HUPALO. May I, sir? I think that the non-dischargeability 

question is one of a number of factors when you are pricing a loan, 

so there may have been other factors included in that, including 

the potential for going down the credit scale, which some lenders 

did do. 

Mr. SCOTT. Well, if there wasn’t much effect when we added it, 

why would there be much effect if you took it out? If you went 

exact to how things were before 2005, why would there be much 

of a difference? 

Mr. HUPALO. Because, again, I don’t know how much of a difference there would be, but there would be some difference, because the lenders would look at the experience that they have had 

and price in what they think will be the increased bankruptcies in 

that forward period. 

Mr. SCOTT. When the loans were, in fact, dischargeable, were 

students, in fact, filing for bankruptcy? What was the experience? 

Mr. HUPALO. Perhaps Mr. Lapas can tell us that. 

Mr. SCOTT. I mean, they could theoretically—I mean, as Mr. 

Hupalo indicated, they were essentially asset-free and heavily in 

debt, and that is an invitation for bankruptcy. Did they, in fact, 

take advantage of it or not? 

Mr. LAPAS. Well, the decision to file bankruptcy is certainly an 

individual decision. And as I indicated to Ms. Chu, there are a lot 

of other factors involved in the decision to file bankruptcy. 

On an anecdotal basis and based just on my practice, do people 

come in with student loan debt or particularly private student loan 

debt solely to file bankruptcy? I cannot recall a single one solely 

that came into file bankruptcy in that respect. But they were certainly part of the debt picture which led to that decision to file 

bankruptcy. 

Mr. SCOTT. So, Mr. Chairman, I just want to end up by saying, 

if although theoretically they could be filing bankruptcy, if that 

wasn’t the actual practice, and we see situations like Ms. Cooks’, 

it seems to me that we are afraid of something that just wasn’t 

happening. 

And so unless we see evidence that—of something happening, I 

think we are—it is just theoretical. There wasn’t any change after 

2005 that is apparent, so I yield back. 

Mr. JOHNSON. Thank you, Congressman. 

58 

Mr. JORDAN. Mr. Chairman? 

Mr. JOHNSON. Yes? 

Mr. JORDAN. I would just unanimous consent if we could enter 

the written statement into the record from the Consumer Bankers 

Association. 

Mr. JOHNSON. Without objection. 

[The information referred to follows:] 


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Mr. JOHNSON. I would like to thank all the witnesses for their 

testimony today. Without objection, Members will have 5 legislative 

days to submit any additional written questions, which we will forward to the witnesses and ask that you answer promptly to be 

made a part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any other additional materials. And, 

again, I want to thank everyone for their time and patience. This 

hearing of the Subcommittee on Commercial and Administrative 

Law is adjourned. 

[Whereupon, at 11:02 a.m., the Subcommittee was adjourned.] 

(65) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE HENRY C. ‘‘HANK’’ JOHNSON, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW


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RESPONSE TO POST-HEARING QUESTIONS FROM DEANNE LOONIN, 

NATIONAL CONSUMER LAW CENTER, BOSTON, MA 

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RESPONSE TO POST-HEARING QUESTIONS FROM JOHN A. HUPALO, 

RAMIREZ CAPITAL ADVISORS, WESTON, MA 

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LETTER TO THE HONORABLE STEVE COHEN, CHAIRMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW, FROM THE NATIONAL CONSUMER LAW CENTER AND

THE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS

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70 

COALITION LETTER TO THE HONORABLE STEVE COHEN, CHAIRMAN, 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

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6.eps
71 

PREPARED STATEMENT OF THE FINANCIAL SERVICES ROUNDTABLE


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72 

Æ 


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