Articles Posted in Student loans

Lots of fighting over student loan forgiveness right now.

One of the big things we were (and still are) looking forward to is a change of law allowing bankruptcy debtors to obtain IDR credit for their plan payments.  Previously, many debtors did not receive such credit because the Department of Education automatically placed student loans in forbearance.  We called that the “False Start” instead of Fresh Start because while a bankruptcy could offer solutions for car loans, foreclosures, and credit card debt, there was not much available for those with student loans.  Instead the balance owed was often much larger after the bankruptcy was over.  That has now changed!!

A new bankruptcy forbearance provision was included as part of a set of regulations that were to implement the SAVE plan.  On June 24, judges in two separate cases involving the SAVE IDR plan, entered preliminary injunctions enjoining some of the regulations from going into effect.

The 10th Circuit came out with a ruling a couple days after the Missouri and Kansas rulings modifying the stay/injunction on the SAVE plan and student loan forgiveness.  It will allow the Department of Education to implement SAVE’s 5% payment calculation for undergraduate loans starting July 1.  The rest of SAVE – the ability to file separate tax returns, the 100% interest subsidy, the lower payment overall will still apply as well.  You can also get into SAVE if you weren’t already in before July 1.  Anyone in bankruptcy, will now receive IDR credit for their plan payments.  Thankfully, the 10th Circuit clarified where things stand with this injunction while the underlying litigation takes months to resolve.

What remains blocked is forgiveness under SAVE.  So anyone who reaches the 20/25 year mark, you can switch into another IDR such as IBR and obtain forgiveness while the litigation is pending.  Switching IDR plans does NOT restart forgiveness timelines.  While we don’t expect litigation to last until December 2025, any forgiveness before that date will not be taxed federally.  So no tax bomb if before December 31, 2025.

If you are working public service, the forgiveness would be under the Public Service Loan Forgiveness (“PSLF”) program and should not be halted.  There are no challenges to PSLF presently or being discussed.  Once the IDR audit/recount occurs in September, we expect to see large numbers of people qualify for forgiveness who did not qualify previously due to having the wrong type of federal loans, being on the wrong payment plan, and most extended forbearances and deferments will be credited with PSLF time.  That IDR audit is now expected to occur in September for anyone who has Direct loans or consolidated non-Direct loans such as FFEL, Perkins or HEAL loans, prior to June 30, 2024.

We’ve confirmed through the NCLC that the new regulation allowing credit for IDR for anyone in bankruptcy will NOT apply to FFEL loans.  Or Perkins loans, or unconsolidated Parent Plus loans.  So it’s best to consolidate to Direct Loans before filing, but now that the 4/30 deadline has passed, it’s best to wait until 7/1 to obtain the IDR credit through the IDR Audit which will average the credit between all of your loans.  If you consolidate in the next two months – 5/1 through 7/1, you may not receive any former IDR credit that you’ve built up, nor any through forbearances and deferments that may count via the IDR audit.  Also, keep in mind the double consolidation window remains open for those with Parent Plus loans through July 2025.  And before you say it, it’s a lot to know – our heads are swimming too!  .

Also, you will NOT receive credit for plan payments made before July 2024.  But if your case is pending, you will receive IDR credit for any plan payments made thereafter.

It’s important to know these rules to get the most student loan debt discharged in bankruptcy.  If your bankruptcy attorney isn’t able to help you with this, make sure to talk with student loan counsel — before filing!!

While we try to get the most information out there through our blogs, monthly newsletters and You Tube Channel Student Loan Sidebar please remember that the information in our videos and this blog does not and is not intended to constitute legal advice.  Instead, all information and content are for general informational purposes – and may not be the most up to date – see the date we produce the video for example.

Please contact us for a strategy session where we review your particular loans and how best to position yourself to create the life that you want with as little debt as possible.

Bankruptcy is finally working for people with student loans — I expect to have a series up shortly about all the ways a bankruptcy can help now with both federal and private student loans.  This didn’t used to be true, and you may find people out there who follow those old rules and say that bankruptcy cannot help with student loans.  I’m afraid that after the IDR audit expires (deadline next Tues – 4/30), bankruptcy will in fact be one of the best – and often overlooked options to reduce crazy student loan debt.

Total and Permanent Disability discharges are also going strong — and never mentioned by loan servicers in our experience!  I just ran our numbers for 2023 and we had 28 TPD matters last year.  Discharges in as little as three months start to finish.  Something else that shouldn’t be overlooked if you find that you cannot work a full time job doing what you used to do.  That’s not exactly the wording that the TPD application uses, but it’s a way that we describe the process which we have found is more accurate than can you dress and feed yourself.  Remember, this is not an SSD review, it’s a vocational review of your ability to work.  We look at a lot of employment related factors, and our doctor can review your medical records and see you by Zoom or in person here in Tampa.  You can be anywhere though – even outside of Florida, even outside of the U.S. for us to help.

Double consolidation for those with Parent Plus loans is working to get people into the lower SAVE payment rather than getting stuck in a multi thousand dollar ICR payment.  There are rules and recommended procedures to do this though – see our videos or set a strategy session with us before you try that on your own.

Don’t forget, next Tues the 30th, is the consolidation application deadline for the IDR account adjustment – often referred to as the IDR Audit.  It’s also the last day before the PSLF processing pause goes into effect, so you may wish to download your payment tracking data from MOHELA before that date.

For more info on the PSLF processing pause:  https://studentloanborrowerassistance.org/the-pslf-processing-pause-what-you-should-know/

For more info on the IDR Audit and how it can help you obtain forgiveness by consolidating before 4/30:  https://studentloanborrowerassistance.org/last-chance-for-many-to-get-more-credit-toward-student-loan-cancellation/.

As we race toward the 4/30/24 deadline for submitting a consolidation application for the IDR Audit deadline, please know that Nelnet has the following phone and email.  They will accept a consolidation application by email.  We recommend calling them a few days after to verify receipt of the application.  There was no hold time as of today!

Nelnet Consolidation 866-426-6765

DirectLoanConsol@nelnet.net