MLive: Sen. Gary Peters wants to give students who default on private loans a second chance

LANSING, MI — College graduates who default on private student loans could get a second chance at a good credit score if legislation proposed by Sen. Gary Peters becomes federal law.

In an announcement at Michigan State University on Monday, Peters announced the introduction of the Fair Student Credit Act. The bill would allow students with private loans to have their default wiped from their credit report and their credit rehabilitated if they made a series of nine consecutive monthly payments.

It's a reintroduction of a bill Peters proposed as a member of the United States House of Representatives in 2013. He said it would give students with private loans the same opportunity for a new start after a default as students with federal loans.

"If someone has a government student loan (and default), they can be rehabilitated, but unfortunately the law does not allow that with private loans," Peters said.

About 850,000 private student loans are in default, amounting to about $8 billion, Peters said.

The bill is aimed at students who are recent college graduates and may have trouble paying off their student loans immediately after graduation. Peters said many students may be actively looking for employment with no source of income, or have a low-paying first job that leaves them unable to make payments on their loans.

He said the nine-month period would allow borrowers who have defaulted to work themselves into a better situation in which to pay off their loan. The amount each student borrower would have to pay would be dependent on an agreement between the bank and the borrower, Peters said.

By:  Kyle Feldscher