Rep. Tim Bishop (D-N.Y.) said Thursday that he will introduce a bill to require private lenders to notify students when a loan is placed in automatic default.
The New York Democrat said his bill would prevent student borrowers from facing automatic defaults on their loans if a co-signer suddenly dies or files for bankruptcy.
{mosads}”The practice of automatically defaulting on student loans without notice to the student or an opportunity to correct the situation is deplorable,” Bishop said. “We need to make it easier for students to access higher education, not pull the rug out from under them when their circumstances change through no fault of their own.”
An automatic default means that the student must pay the full amount of the loan immediately. Individuals who cannot pay off an entire automatically defaulted loan consequently get reduced credit ratings.
Under Bishop’s bill, lenders would be required to give 90 days to find a new co-signer.
Bishop said the measure will be introduced next week when Congress returns from the two-week recess. The move follows notice from the Consumer Financial Protection Bureau Tuesday that it is investigating the issue.