Articles Posted in Student loans

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penny-hoarder
We were interviewed by the Penny Hoarder this week in their story “How You Could Get a Temporary Break from Student Loans Due to COVID-19.”

You should also check out our recent blog post “Watch Out for These Pitfalls that may come with Suspended Federal Student Loan Interest.”

Under the right circumstances, a six month forbearance with non-accrual of interest will help a lot of folks.  But beware that not everyone will qualify for this and their credit could be impaired if payments are not made.  An income driven plan starting right now could be a better option for those with FFEL loans!  You can also have your current income driven plan recalculated if your income or hours have dropped recently.

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The CARE Act passed over the weekend extends the 60 day forbearance, interest waiver for all Direct Loans, and collection activities for 6 months.  Until the Department of Education can update its rules to be CARE compliant, here is a summary of what to expect:

Coronavirus and Forbearance Info for Students, Borrowers, and Parents

Interest Suspension:

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgHow do you determine if the COVID-19 federal law waiving interest applies to your federal student loans?  The most recent changes are summarized here in a nice Q&A format:  https://studentaid.gov/announcements-events/coronavirus.

My take on all this:  The Act suspends student loan payments and interest accrual through September 30. For those in federal loan forgiveness programs, those months will count as months in which payments were made.

Now for the finer points:  for the interest waiver, not all federal loans count, only Direct Loans and those Federal Family Education Loans (FFEL) which are owned by the government.  Most FFEL loans are owned by third parties and only guaranteed by the government.  Perkins Loans are owned by the institution and the interest waiver does not apply either.  Eighty percent of all federal loans were FFEL loans before the FFEL program was discontinued in 2010.  I’d estimate one-quarter to one half of all federal loans are still FFEL loans.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgWe’ve gathered some information below for folks with student related questions if their job/business/income has been impacted by the CoronaVirus/COVID-19:

Here some info below on servicers and US Dept of ED current updates:

  • Nelnet; currently open “attempting to keep call centers staffed, however use online options”  Offers: Deferment, forbearance
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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgLawyers often spend too much time focused on whether a debtor meets the Brunner test for undue hardship that they miss major opportunities to reduce and eliminate federal and private student loan debt.  Many people are in forbearance for years while their loan balances continue to grow.  Taking advantage of Income Driven Plans in bankruptcy by using the Buchanan language and the new Student Loan Management Program in the Middle District of Florida can save tens of thousands of dollars.

How else can a student loan attorney help?  By ensuring borrowers are placed in the correct IDR plans which can often save hundreds per month and allow for full forgiveness.  Helping borrowers to understand and minimize the tax consequences.  Curing defaults to stop wage garnishment, social security offset and tax intercepts.  Helping borrowers ensure they are properly enrolled in Public Service Loan Forgiveness – to avoid being one of the 99.5% who are being denied this relief.

Private non-qualified, non-school certified, loans are subject to discharge.  Recent case law permits the discharge of private loans to attend ineligible schools, Bar Study or Tuition Answer loans or for debt incurred beyond the cost of the education.  Cases such as In re Kashikar, In re Campbell, In re Dufrane, In re Wiley, In re Essangui and In re Decena are paving the way to creating Florida precedent for discharge such as in In re Lysiuk and In re Lytkina a/k/a Mulligan.  We help consumers to take control of their student loans and create a plan for a reduced amount of debt, and an affordable payment with an end in sight.  Settlements outside of bankruptcy are also possible, although this will cause a taxable event for the forgiveness (which does not occur in a bankruptcy).

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consumer-debtCourts are divided on this issue.  The answer may matter as to whether a debtor in bankruptcy must pass the means test.

The federal Bankruptcy Code defines consumer debt as debt incurred by an individual “primarily for a personal, family, or household purpose.” … The court may classify student loans as either consumer debt or non-consumer debt.

Some courts, like the court in In re Gentri, 185 B.R. 368, 373 (Bankr. M.D. Fla. 1995), assume that student loans are consumer debts, but do not analyze, whether student loans are “consumer debts.” See In re Dickerson, 193 B.R. 67, 70 (Bankr. M.D. Fla. 1996); In re Chapman, 146 B.R. 411, 416 (Bankr. N.D. Ill. 1992).

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgOur record now for obtaining forgiveness of federal student loans for one client is over a million dollars.  So there is no cap — and this took less than three months.  Client consulted with us on 11/11/19 and the Total and Permanent Disability forgiveness of over one million dollars was obtained on 2/4/20.  Of course, much of that debt was interest accumulated over a looonnnnggg period of time.  Something we often see!

The client’s income will be monitored for the next three years.  He can make a little, up to the poverty level for a family of two, from employment income, but no more, otherwise the forgiveness could be reversed.  Income from a spouse or from sources other than employment does not count.

What are you waiting for?  Do you know a family member or friend who can no longer work, who is stressed about their student loans?  If so, do them a favor and share this.

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https://www.tampabankruptcylawyerblog.com/wp-content/uploads/sites/10/2015/07/christie_d._arkovich_p.a_1_small.jpgPresident Trump’s proposal to eliminate public service is not nearly as bad as the headlines make it appear.  Basically, 99.5% of folks are being denied for PSLF right now because they do not know how to qualify.  Their federal student loan servicers are doing a poor job of communicating to the borrowers what is necessary for forgiveness.  It’s not hard, we do this type of work for our clients all the time, but then again, we know what to do.

President Trump proposes to simplify the process and have one income driven plan for all.  Won’t matter where you work etc.  The payment would consist of 12.5% of discretionary income for 15 years.  Right now those seeking public service forgiveness pay between 10-20% discretionary income over 10 years.  So it adds five years for those in public service.  But it drops ten years for those employed in the private market who are often on a 25 year IBR plan.  That’s huge — who wouldn’t want ten years shaved off!  And if you were to ask someone in public service if they would rather pay for 15 yrs and have the certainty of forgiveness tax free, as opposed to 10 years, with only ½ of one percent getting approved, I’d say the vast majority would select the new plan.  The current program is a nightmare.

Current borrowers could stay in the 10 year plan if they wished as well.  I know, I know, that’s what they said when President Obama was pushing Obamacare, but that’s what the proposal states.

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Student Loan Solutions
See below for tips to end roadblocks faced by our older population when dealing with student loans!

In a Yahoo Finance article this week, several problems were outlined and addressed during Secretary DeVos’ testimony on Capitol Hill.  First, lengthy delays in the Borrower Defense to Repayment program for those who were fraudulently misled by their schools.  Second, public service forgiveness denials for those who believed their student loan payments have been counting for years.  And third, confusion and difficulties for those trying to obtain student loan relief due to their disabilities.  I’d like to focus on this problem because while public service and fraudulent schools have had tons of press over the past couple years, the roadblocks faced by disabled borrowers have not been discussed much at all.

Under federal law, a disabled person can apply for total and permanent disability discharge to relieve their federal student loan debt.  However, on December 4, 2019, NPR released the data and results of an investigation that showed that only 28% of eligible borrowers identified between March 2016 and September 2019 have either had their loans wiped clean or are on track for that to happen.

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Student Loan SolutionsSome of our student loan clients have asked what they can make in terms of income and still be approved for a social security disability discharge.  Normally we tell them income from employment counts, income from investments do not.  For those that fear that they have to do a little part-time work in order to meet their bills, the guidelines allow someone to earn up to the poverty guidelines for their family size (and a family of one can use a family of two).

 
What forms of income are used to determine if I am exceeding the Poverty Guidelines or not?
The only income used to determine if you are exceeding the Poverty Guideline amount is income from employment.

Type of Income Counts Toward Poverty Guideline Amount?
Earnings from wages, tips or other taxable employee pay Yes
Earnings from self-employment Yes
Supplemental Security Income (SSI) No
Child Support No
Federal or state assistance No
Retirement Plan Income No
Unemployment Benefits No
Your spouse’s income (from any source) No

 

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