There are several ways to discharge federal student loans, including:
The 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).
Did 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:
I 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.
All 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!
New 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:
Under 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:
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:
We are seeing forgiveness every week, more likely every day, now, but many are still waiting…
Interestingly, the huge spending bill being discussed by Congress right now does not include anything additional to Federal Student Aid.
What does this mean? Well, the FSA has to modernize its National Student Loan Database System to make it far more transparent than it currently is, provide a viewable tracking IDR payment mechanism, switch all servicer websites to its own government website, restart payments in August-ish, introduce a new IDR program in July, process the PSLF Waiver, implement and process the IDR Waiver, create and process a Joint Spousal Consolidation application to separate the loans, possibly cancel 10k or 20k pending the result of the Supreme Court, plus grant the discharges for all Borrower Defense to Repayment applications along with refunds for any monies paid to ED for over 100 schools approved by the Sweet v. Cardano class settlement. Wow.
This is not recommended as bedtime reading, but sometimes it does help to go right to the source when trying to figure out what the new rules are and how they may apply to your loans. The Final Regulations go into effect July 2023 and can be found here: https://www.federalregister.gov/documents/2022/11/01/2022-23447/institutional-eligibility-under-the-higher-education-act-of-1965-as-amended-student-assistance
One big answer for BDTR applicants – the Regulatory Action will: Provide for a full discharge of all remaining loan balances and a refund of all amounts paid to the Secretary for loans associated with an approved BD claim.
The timing is estimated to be within 12 months.
Here’s a news clip on this topic that ran yesterday: https://www.youtube.com/watch?v=77xsEU7rFM0
It’s a good short 2 minute summary of what this means and well worth a listen! I haven’t seen this in the news much and we really need to get the word out because in my 30 years of practice, I see this as finally working to discharge significant federal student loan debt.
So how are we starting on this to get our student loan and bankruptcy clients discharges in 2023?
Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog