Senate Democrats Introduce New Student Loan Package

Senate Democrats Introduce New Student Loan Package

ABI Bankruptcy Brief | May 6, 2014
 
  

May 6, 2014

 
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SENATE DEMOCRATS INTRODUCE STUDENT LOAN PACKAGE

Senate Assistant Majority Leader Dick Durbin (D-Ill.) joined Sens. Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.) today introducing the "Bank on Students Emergency Loan Refinancing Act," which would allow those with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers. Many borrowers with outstanding student loans have interest rates of nearly 7 percent or higher for undergraduate loans, while students taking out new undergraduate loans pay a rate of 3.86 percent under the "Bipartisan Student Loan Certainty Act" passed by Congress last summer. The Bank on Students Emergency Loan Refinancing Act would allow students and young people to pay back their outstanding loans at the same rates that were established last summer in the Bipartisan Student Loan Certainty Act. There are nearly 40 million Americans with outstanding student loans. The new bill could lower payments for millions of those individuals by hundreds or thousands of dollars a year, according to the bill sponsors. The average student loan debt among those who borrow to get a bachelor's degree is nearly $30,000 -- and nearly 30 percent of Federal Direct student loan dollars are in default, forbearance, or deferment. Meanwhile, the Government Accountability Office (GAO) recently projected that the government will bring in $66 billion in revenue on its federal student loans made between 2007 and 2012. The bill would also amend the Bankruptcy Code to permit the discharge of private lender debt, as was the case prior to the 2005 amendments. Read more.

Join leading policy-makers and scholars discussing the student debt crisis at ABI's Student Loan Debt Crisis Symposium on May 30 at Georgetown University Law School. For more information or to register, please click here.

To hear more views from Sen. Durbin on the issue of student loans, be sure to listen to his recent ABI Podcast.

GROUP SEEKS MORTGAGE-SWAP REBIRTH FOR DODD-FRANK ERA

Six years after subprime-mortgage swaps helped fuel the financial crisis, IntercontinentalExchange Group Inc. (ICE) is pitching Wall Street on new derivative contracts allowing investors to wager on U.S. homeowner defaults, Bloomberg News reported today. ICE, which owns the biggest clearinghouse of swaps tied to the creditworthiness of companies, is gauging interest among banks and investment firms for a contract linked to a new type of mortgage securities that Fannie Mae and Freddie Mac started selling last year. The government-backed firms have issued $4.5 billion of those bonds, which share the risk of home-loan defaults, as policy-makers seek to scale back their roles in the $9.4 trillion mortgage market. Subprime mortgage derivatives were among the fastest-growing financial instruments during an era of innovation that fueled the credit bubble that triggered the 2008 crisis. After the first sale of the bonds in July by Freddie Mac, the riskiest portion has soared from par, or 100 cents on the dollar, to about 129 cents on April 29, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Unlike the mortgage-linked swaps created during the credit bubble, the new contracts would be backed by ICE's clearinghouse. The Dodd-Frank Act has been pushing most trading in the market into such entities, which are intended to curb risks to the financial system by collecting margin to ensure deals that are honored and holding billions of dollars in reserves from banks. Read more.



FED SAYS U.S. BANKS EASED LENDING STANDARDS IN LAST THREE MONTHS

The Federal Reserve said yesterday that banks eased lending standards for U.S. commercial loans as well as credit card and auto loans in the last three months while demand for the loans increased, Reuters reported yesterday. Banks on balance "eased their lending policies for commercial and industrial and commercial real estate loans and experienced stronger demand for both types of loans over the past three months," the U.S. central bank said in its quarterly survey of senior loan officers. The poll, which covered 74 U.S. banks and 23 U.S. branches of foreign banks, found that key forms of consumer credit also expanded. In the survey, 37 percent of loan officers said that demand for credit card loans from the most creditworthy borrowers had increased last year. More than half said they expected the trend to accelerate through 2014, while 23 percent said they expected demand among less creditworthy borrowers to increase as well. Read more.

ATTORNEY GENERAL: NO COMPANY IS TOO BIG TO JAIL

No company or individual is too big to jail, Attorney General Eric H. Holder Jr. said yesterday as the Justice Department prepares criminal charges against two of Europe's largest banks, the Washington Post reported today. The Justice Department has been facing criticism that federal prosecutors have failed to bring criminal charges against Wall Street banks out of fear of destabilizing the financial system. The critique was fueled a year ago when Holder told lawmakers that some companies had become so large that it was difficult to prosecute them because of the potential impact on the economy. Holder yesterday did not backtrack from those earlier comments, saying it would be "irresponsible" not to consider the fact that criminal charges could trigger the loss of a bank's charter, effectively crippling its business. But he said that the potential for such an outcome means prosecutors need to work with regulators to hold banks accountable without wrecking their entire business. Read more.

CORRECTED: FOURTH CIRCUIT HOLDS THAT CHAPTER 7 TRUSTEES MUST BE PAID ON A COMMISSION BASIS

Releasing an opinion on Monday in Gold v. Robbins, the Fourth Circuit reversed a bankruptcy court ruling that had reduced a chapter 7 trustee's commission-based compensation to what the bankruptcy court believed, instead, was his reasonable hourly services, according to the NCBankruptcyExpert Blog. The Fourth Circuit noted that § 330(a)(7), added by BAPCPA, states that "[i]n determining the amount of reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on §326." The use of the word "shall" in § 330(a)(7) is in contrast with the "may" language used elsewhere in § 330(a). Accordingly, the Fourth Circuit determined that absent extraordinary circumstances, a bankruptcy court is required to compensate chapter 7 trustees on a commission basis. The court remanded the case with instructions to the bankruptcy court to determine the proper commission-based fee after an evidentiary hearing.

Correction: The May 1 edition of the Bankruptcy Brief erred in saying that the Fourth Circuit "affirmed a bankruptcy court ruling"; the Fourth Circuit in fact reversed the bankruptcy court's decision.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: MUTH V. MUTH (IN RE MUTH; 10TH CIR.)

Summarized by Bryan Robinson, Law Office of Bryan Robinson

The 10th Circuit BAP affirmed the ruling by a bankruptcy court that dismissed the debtor's chapter 11 case and the award of attorney's fees to the debtor's former spouse. The case was dismissed for cause pursuant to 11 U.S.C. §1112 because (1) of the absence of a reasonable likelihood of the debtor's ability to present or fund a confirmable plan and (2) the debtor filed his petition in bad faith.

There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: HOW SAFE IS THE SECTION 546(e) SAFE HARBOR? PART II: FINANCIAL INTERMEDIARIES AND FINANCIAL INSTITUTIONS

In the second part of an ongoing series, a blog post explores two issues: first, whether a "financial intermediary" is required for the safe harbor to apply, and second, whether undoing a transaction must pose a risk to the financial markets for the transaction to receive the protection of the § 546(e) safe harbor.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Enforcing pari passu clauses in favor of holdout bondholders by injunction against Argentina will undermine sovereign debt restructurings (NML Capital, Ltd. v. Republic of Argentina).

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

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2014

May
- New York City Bankruptcy Conference
    May 15, 2014 | New York, N.Y.
- Litigation Skills Symposium
    May 20-23, 2014 | Dallas, Texas
- abiLIVE Webinar: Representing Creditors in Wilmington and Manhattan
    May 28, 2014 |
- Student Debt Crisis Symposium
    May 30, 2014 | Washington, D.C.

June
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    June 4, 2014 |
- Memphis Consumer Bankruptcy Conference
    June 6, 2014 | Memphis, Tenn.
- Central States Bankruptcy Workshop
    June 12-15, 2014 | Lake Geneva, Wis.
- abiWorkshop: Chief Bankruptcy Judges Roundtable
    June 16, 2014 | Alexandria, Va.

  

 


- Cross-Border Insolvency Program
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- ABI Endowment Baseball Event
    June 26, 2014 | Chicago, Ill.

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    July 15, 2014 |
- Northeast Bankruptcy Conference
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