Articles Posted in Student loans

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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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Christie_1There are several ways to discharge federal student loans, including:

  1. Total and Permanent Disability (TPD) discharge: If you are completely and permanently disabled, you may be eligible for TPD discharge.
  2. Death discharge: If the borrower of a federal student loan dies, the loan may be discharged.
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Christie_1The Borrower Defense to Repayment (BDTR) program has undergone so many changes over the past decade it’s hard to keep track.

Notably, I wanted to set the record straight for those who may be receiving weird messages about their pending BDTR apps.

Only the 2019 Borrower Defense Rule imposed a statute of limitations on borrowers, and that rule only applied to loans that were issued after July 1, 2020– it does not apply to most of the BDTR applications. Unfortunately, when ED created its borrower defense application, it used a single application for all three standards without adequately differentiating what warnings would be shown to borrowers applying under different standards. As a result, borrowers get misleading warnings that don’t actually apply to them at all. There are no limitations periods for the 2016 or 1994 Rules (although there are some restrictions on when borrowers can receive a refund of amounts paid towards the loans implicated by the borrower defense application).

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Christie_1Did you realize that we have free videos on what to do about your student loan on our YouTube Channel “Student Loan Sidebar”?  Here’s a post from a few hours ago from one of our followers:
  • YouTube videos on student loan forgiveness have just been absolutely amazing. They break it down so it simple to understand. This whole thing has been so frustrating and these videos help to alleviate much of the anxiety I’ve had. Thank you! 
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Christie_1I had a consult recently that is a good overview of what questions our clients have and how we are able to drill down to the essentials and help determine the best path forward to ending student loan debt.  This client reached out to us after viewing one of our Youtube Student Loan Sidebars where we go over the practical impact of new programs and what we see out there to help student loan borrowers.

Client:  300k SL debt, mostly Direct, 23k FFEL.  Client has a pending consolidation app.

Key concern:  How does IDR impact me?  Did PSLF Help Tool but still confused.

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Christie_1All this talk about changes within the federal student loan system, I didn’t want to give the impression that nothing can be done with private student loans.  Just today, we have a client who accepted an offer to save $165,000 on his private student loans!   And this was not a lump sum settlement to be paid all at once.  The terms are the reduced balance is to be paid out over 27 years at a very low interest rate of 1%.  They payment is exceptionally low and finally affordable!

So while a full discharge or 100% forgiveness may not always be possible with a private loan, settlements are very realistic with the right facts.  Contact us if you have a private student loan and need some help getting it resolved!

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social-image-logo-ogNew IDR Terms Announced!  Sorry for the delay in getting this out, Covid has put me behind a week or so.

The new IDR Plan expected out in July before the payment pause ends will not exactly be a new plan.  Instead of confusing borrowers and making yet another IDR plan, the Department of Education has decided to modify the terms of the existing Repaye plan to try and simply things.  While some of us are a little worried that this process would enable a future administration to change the terms back, we do feel that the steps underway will be a huge improvement for federal student loan borrowers.  Also, it would be difficult for a new administration to back date substantive negative changes so while we don’t expect this to occur, it’s in the back of our minds.

The changes are underway now and a formal 30 day comment period commenced a few days ago.  If the terms do not meaningfully change before implementation this summer or fall, here’s what to expect:

Published on: the new provisions allowing a Debtor to attest to an undue hardship, a consolidation pre-filing would be viewed as evidence of good faith – this is the box that may be checked:

  • engaging meaningfully with a third party they believed would assist them in managing their student loan debt.

Also, there could be problems if a consolidation is later done after filing as this would create a new post-petition debt that the Court may not be able to discharge effectively.  As always, please consult with a bankruptcy and student loan attorney as this can get complicated and you are usually talking about a very large debt and don’t want to make any mistakes.  Here’s the case law for the above assertions:

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