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updated: 4/12/2013 7:46 AM

Bill bans lenders from garnishing graduates' wages

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  • Assemblywoman Shannon Grove, R-Bakersfield, speaks in opposition to a measure that would prevent lenders from garnishing the wages of those who fail to repay student loans not made or guaranteed by the federal government, during the Assembly session at the Capitol in Sacramento, Calif., Thursday.

      Assemblywoman Shannon Grove, R-Bakersfield, speaks in opposition to a measure that would prevent lenders from garnishing the wages of those who fail to repay student loans not made or guaranteed by the federal government, during the Assembly session at the Capitol in Sacramento, Calif., Thursday.

 
Associated Press

SACRAMENTO, Calif. -- Graduates struggling to repay private student loans could get a reprieve under legislation that passed the California state Assembly on Thursday.

The bill from Assemblyman Bob Wieckowski, D-Fremont, would prevent private lenders from garnishing the wages of indebted former students.

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Wieckowski said the creditors are allowed to withhold up to 25 percent of a delinquent borrower's disposable income. Preventing such automatic withholding would encourage lenders to create manageable repayment plans for graduates, he said.

Supporters said the increasing level of student loan debt, which cannot be eliminated during bankruptcy proceedings, endangers the state's economy by limiting young adults' ability to buy homes and make other investments.

"It's placed an inordinate burden on underemployed graduates," Wieckowski said.

In California, 51 percent of college graduates in 2011 left school with public or private loans, according to a study by the Institute of College Access and Success, a nonprofit research group based in Oakland. Their average debt burden is nearly $19,000.

A federal study released last year by the Consumer Finance Protection Bureau said outstanding student loan debt in the U.S. exceeds $1 trillion. Private student loans account for more than $150 billion.

The percentage of private student debt continues to grow, Wieckowski said. In 2004, 5 percent of the average student's debt was privately held. By 2008, that figure had risen to 14 percent.

The bill, AB233, would not affect the government's ability to tap wages for the repayment of federal student loans.

Republican lawmakers who opposed the bill said it would be unfair to private lenders if the federal government could continue garnishing wages while private lenders cannot. The strategy is one method they use for ensuring debts get repaid.

Access to private loans could shrink as a result, opponents said.

"You may dry up the market of private loans being accessible in the future," said Assemblywoman Shannon Grove, R-Bakersfield.

Texas, Pennsylvania, South Carolina and North Carolina have enacted similar laws to prohibit wage garnishment on private student loans.

The legislation was sent to the Senate on a largely party-line, 50-22 vote. GOP lawmakers opposed it, along with Democratic Assemblyman Mike Gatto of Los Angeles.

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