Articles Posted in Student loans

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Christie_1One of the early and frequent arguments made by opposing counsel in our private student loan discharge adversaries in bankruptcy is that the student loans were made for an educational benefit and thus are excluded from discharge.  Specifically, Section 523(a)(A)(ii) exempts from discharge “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”  The creditors’ attorneys’ argue that there is ample case law to support that assertion.

The “ample” case law referenced by opposing counsel is an older view replaced by the current view clearly supported now by three circuits.  In other words, appellate law from these three circuits have more precedential value than trial level opinions often cited by defense counsel.  Bottom line, this is the typical initial creditor response that no longer has any merit.  It’s meant to test your knowledge in my opinion.  Many who are bringing these cases for the first time would fold because a student loan certainly appears to have an educational benefit at first blush.

The Second, Fifth and Tenth Circuit have recently affirmed that private student loans are not “obligation[s] to repay funds received as an educational benefit, scholarship, or stipend” – and thus not covered under 523(a)(8)(A)(ii).  See Homaidan v. Sallie Mae, Inc.

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Christie_1Some of you may have heard that the May 1 deadline to consolidate older FFEL federal student loans to the newer Direct student loans for the one time account adjustment has just been extended until the end of the year.  While that initially seems like great news, why is it NOT a good idea to wait?

The health emergency ends May 11.  Once the Department of Education presents the IDR Waiver in a few days, this will give plenty of ammo for commercially held FFEL loans to sue to cancel what will likely be $200 billion of student debt to avoid forbearance months from counting and other methods of counting payments that don’t exist outside of the IDR Waiver program.  $200 billion reasons to appeal.  The appeal alone may stretch that out to the next administration.

Our advice is to consolidate before mid May to get it done, while it can be done.  Just in case.  $200 billion is a lot of money and there is growing support behind commercially held loans to not just wipe them out.

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Christie_1The deadline to consolidate FFEL loans to Direct loans under the IDR Waiver program requiring a one time account adjustment has been moved from May 1 to the end of the year.  This takes some pressure off for sure — but it’s still a good thing to do now rather than later.

I have some questions about how qualifying payment counts will be credited now that the IDR Account Adjustment period has been extended:

  1. Under the Account Adjustment rules, if you consolidate loans with different payment histories, the longest history is applied to the entire consolidated balance.
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Here’s a copy of a redacted letter our client received today – her loan is now toast!  We should expect many many more in the next few days…

Borrower Defense Application School: Argosy University

Approval of Your Borrower Defense Case Under Exhibit C of the Sweet v. Cardona Settlement

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ABIReminder, ABI’s presentation for the new DOJ bankruptcy attestation discharge process is today at 3:00 p.m., here’s the link:

We are presenting along with Chad VanHorn from South Florida to explain how to file these cases, and give practical tips along the way!  I’m sure the ABI will have a recording of this national webinar available on their website if you can’t make it .

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Christie_1I’m jointly presenting a webinar this week for the ABI on the new DOJ procedures to allow the discharge of federal student loans.  The intent of the DOJ in reviewing student loans for discharge is to help create a process that allows:

  • Clarity, transparency and consistency
  • Reduce burdens by simplifying the fact gathering process through a form Attestation
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Christie_1Turns out yes.  I just read a pretty cool story in the New Yorker about a 91 year old lady, perfectly healthy, obtained a full forgiveness under a “compromise and settlement authority” provided for under the Higher Education Act of 1965.  Although it is a last ditch effort as there are many other ways to obtain forgiveness now.

There is an easier way.  The IDR Waiver program will allow for someone like this to consolidate their older federal loans to Direct Loans (provided this is done before May 1, 2023), and after 20 years of repayment all undergrad loans would be forgiven.  25 years for grad loans.  I believe this lady would have qualified for that as well – although I don’t have access to her loan history to know for certain.

But if you miss that May 1 deadline, or the IDR Waiver, TPD, BDTR or PSLF don’t fit your circumstances for some reason, then this is a way out – used mostly when the Department of Education believes it would be more costly to collect the loan, or when it cannot locate the original promissory note.

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Christie_1What is the IDR Waiver?

The Short Version:  if you have an older FFEL loan, even a prior FFEL Consolidation Loan, make sure to consolidate this to a newer Direct Loan asap if you want all of the relief this program allows (contact us if you have any doubts or concerns about losing prior IDR time, interest rate increases, effects on PSLF etc.)  While the deadline to do so is May 1, the servicers are busy and it doesn’t pay to wait until the deadline!!

For many years, student loan servicers steered struggling borrowers into forbearance instead of guiding them toward income driven repayment.  Income driven payment generally caps payments at no more than 10 percent of income, and ultimately leads to loan forgiveness after 20 or 25 years of repayment.  Many of these loan servicers also failed to accurately track borrowers’ progress toward forgiveness.  Some of these companies had no system for tracking payments and identifying when borrowers would qualify for forgiveness.

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Christie_1The Brunner standard is a legal test used in certain circumstances to determine whether a borrower’s federal student loans can be discharged in bankruptcy. The test was established by the U.S. Supreme Court in the case of Brunner v. New York State Higher Education Services Corp. (1987).

The Brunner test has three prongs:

  1. Hardship: The borrower must prove that repaying the loans would impose an undue hardship on the borrower and their dependents.
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