Articles Posted in Student loans

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Christie_1Many questions surround the possibility and even probability of discharging student loans in bankruptcy.  The law around student loan dischargeability hasn’t changed in many years, the way I understand it – it’s just that newer theories on applying that law to private student loans have come to the forefront in recent years and then we had the rise of the Federal attestation process even more recently this past year.  The new bankruptcy IDR rules go into effect in July this summer and apply to any pending case.  There have also been a few class actions allowing for more certainty of discharge of loans after the fact even if an adversary action against then lender isn’t filed in the bankruptcy.  These involve situations where the loans are non-qualified education loans etc.

Bottom line, is that it’s finally working.  We are starting to see successful discharges of both private and federal student loans on a regular basis now.  This never used to be the case.

In fact, with today’s political uncertainties, it may be better to get a court ruling of dischargeability now rather than wait and see if some of the recent guidelines retract after the election.  A court ruling will withstand all of that.  Food for thought.

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Christie_1We’ve received some repeat questions lately by parents whose children are still in college.  Basically, they are worried that there isn’t enough time to get a double consolidation done to get into SAVE.

Here’s the rules:

  • The loan does have to be fully disbursed.
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Christie_1A little birdie told me that Sunday’s show will be about student loans.  I just watched the one last week on Boeing and it was really good!  Made me pretty happy not to own Boeing stock… Here is the Boeing story

You can watch/stream Last Week Tonight with John Oliver on MAX, Max Amazon Channel and Spectrum on Demand as well as HBO of course.

With over 9 million views on the Boeing story, we are hopeful that this show on student loans will help raise awareness of the upcoming April 30, 2024 deadline to apply to consolidate the older federal loans known as FFEL loans to the newer Direct loans.  By doing this before the deadline, you will NOT lose your prior IDR history and in fact can re-date all of your federal loans to the earliest repayment date and get so much credit towards forgiveness.

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Christie_1For those of you who are on the receiving end of credit dings due to federal agencies messing up your student loans, the recent Kirtz decision allows a consumer to sue a federal agency under 15 U.S.C. Sections 1681n and 1681o for defying the terms of the Fair Credit Reporting Act.  The history of this case can be found here:

While the case itself dealt with some agricultural entity, it will apply to all federal agencies that seek immunity from wrongdoing under the FCRA.  Only those in the 3rd Circuit are legally bound, but opinions like this have a way of wandering to other circuits and directly affecting the laws there almost immediately.

We are now regularly seeing false information being reported on someone’s credit reports about the remaining balance, payment status and other student loan related information.  Please reach out to us to help evaluate whether you have a case under the FCRA.  Remember, negative information on your credit can wreck havoc on other things including:

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Christie_1Remember, any private or federal student loan debt that is forgiven before December 31, 2025 is not subject to federal tax.

Due to the American Rescue Plan Act of 2021 loans that are forgiven are not considered taxable income for federal income tax purposes. Since state and local tax implications will vary, we recommend you contact a tax advisor for more information.

I’m working on a new blog about 1098s that we are hearing going out to borrowers for interest that is rolled into a consolidation or forgiveness under the Borrower Defense program.  That should be out in a couple days.

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Christie_1Finally!  Relief for Joint Spousal Consolidation Federal Student Loans

Did you know that married couples were allowed to consolidate their debt under a program that existed from 1993 to 2006 which allowed a single monthly payment and often a lower interest rate.  But it meant that each spouse was 100% liable for the other spouse’s debt.  Moreover, borrowers who had these Joint Spousal Consolidation loans were often left out of most programs.  We’ve long known of the problems plaguing borrowers in this “One Way In, No Way Out” program.

Borrowers were unable to sever the loans despite divorce, an uncommunicative partner, domestic violence or financial abuse.  Borrowers also were not eligible for most of the best programs which required a Direct Loan because they were trapped in the FFEL Consolidation Loan.

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Christie_1Good news: the Administration announced last week that in February, it will begin early implementing the SAVE provisions that provide cancellation of borrowers’ remaining balance in as few as 10 years of qualifying payments depending on the total amount originally borrowed.

Borrowers enrolled in SAVE will have their remaining balance forgiven after 10 years of qualifying payments if they originally took out $12k or less in federal student loans, with one additional year of payments required for every additional $1,000 borrowed, up to a max of 20 years for those with only undergraduate loans, and 25 years for those with any federal student loans for grad school.

So if you are a little over $12k initially borrowed, no worries, they are allowing for one additional year of IDR (SAVE) for each $1,000 over.

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Lots of confusion out there regarding the three year monitoring.  The wage monitoring part of the three year monitoring went away, but NOT the three year monitoring as a whole.  What does that mean?

Well, if the borrower returns to school and takes out federal loans, that could reinstate the forgiven loans if done within the post discharge three year period.  The 1099 (which may or may not actually be sent) is supposed to be sent out AFTER the three years are over.  This could render the forgiveness taxable under federal guidelines if done after December 31, 2025.  Congress will have to allocated additional funding to the TPD program to allow for the non-taxability to continue after that date.

Also, if the borrower was approved based upon their SSA status, and that status changes, the loans may be reinstated.  Our clients are approved on a physician’s certification so that shouldn’t matter for us.

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Christie_1Despite lots of changes in the landscape allowing the discharge of both federal and private student loan debt under the right circumstances, many people still believe that student debt survives a bankruptcy.

Private loans follow very different rules then federal as you probably know.

One thing I haven’t written much about are private loans for these vocational schools such as those for coding, helicopter, cosmetology etc.  If the school is NOT on the federal Title IV list for the years of attendance, those are dischargeable in a bankruptcy.

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Christie_1Most people I speak with about the disability discharge of federal student loans are concerned that the test is similar to the Social Security Disability analysis.  It’s not.  You don’t have to deal with a scale of whether you can feed or dress yourself.  You don’t have to be approved for SSD.

It’s a vocational test.  Something we’ve dealt with often with our ADA or FMLA work for our former plaintiffs’ employment law practice.

The TPD standard doesn’t mean the borrower can’t work at all, it just means that due to their medical condition(s), they can’t reasonably work enough to be able to sustain themselves. 

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