There is a separate process from the Social Security Administration’s process that is available through NelNet to discharge federal student loans (no matter who the servicer is). It’s called a Total and Permanent Disability Application. The good news is that it has been taking our firm only about two months to obtain this 100% discharge of student loans. It’s also tax free for any applications approved prior to 2025. After that, it will depend upon whether the program’s tax forgiveness waiver is extended by Congress.
A couple critical issues arise when filing these applications. First, is the need to get it right the first time around — in other words don’t file a half-%$$ application and expect it to be approved by the Department of Education. Second, many jobs nowadays are performed remotely and at all hours of the day or night. So an employer’s inability to reasonably accommodate an employee under the Americans with Disabilities Act may need to be explored and included as a supplement to the TPD application. Third, you can work, although at a minimal level and earning no more than the poverty level for a family of two.
This begs the question: how much work can be performed, but yet qualify as being unable to engage in “substantial gainful activity”.
Student debt is no longer just a young persons’ issue. As of December 2018, approximately 8.4 million Americans aged 50 and older owe $289.5 billion in student loans, approximately 20% of total student loan debt. This represents a 512% increase from the $47.3 billion owed by that cohort in 2004, making the growth of student loan debt among older borrowers the greatest among any age group.
A 2017 analysis by the Consumer Financial Protection Bureau reveals that from 2012 to 2017, total student loan debt for borrowers aged 60 and above increased by 72% in New Jersey, 107% in Pennsylvania, and 146% in Delaware. Many of the growing number of older borrowers face challenges that make them more reliant on their loan servicers for assistance and more vulnerable to misrepresentations by those servicers.
The data also shows that record numbers of older student loan borrowers are struggling with repayment. Delinquency rates for student loan borrowers over 60 has jumped by 80-106% in the Northeast United States. Typically, student loans are often a bigger problem here in the Southeast, so I would guess Florida’s delinquency rate has increased at least 100% from five years ago. AARP reports that federal student loan borrower defaults increase with age. In 2015, approximately 29% of federal student loan borrowers between 50 and 64 were in default; for borrowers aged 65 and above, the default rate rate rose to 37% The default rates for those below 50 is 17% – still high unfortunately.
In an effort to ensure debtors receive a “fresh start” and not a “false start”, the Bankruptcy Court for the Middle District of Florida has implemented a Student Loan Management Program which utilizes a transparent portal to obtain relief from federal and private student loans. The SLMP is an attempt to tackle the $1.5 trillion student loan debt that is currently owed by 44 million Americans. The goals of SLMP are threefold: 1) increase communication which is presently lacking between both federal and private student loan borrowers and their servicers; 2) raise awareness among borrowers and their counsel of available options; and 3) end unnecessary and costly forbearance during bankruptcy. The SLMP will start October 1, 2019.
Rather than simply leaving these loans on hold to accrue capitalizing interest in a Chapter 13, the SLMP is designed to enhance communication and availability of available options and end needless forbearance which causes larger loan balances. For instance, a Debtor who owes $100,000.00 in student loans with an interest rate of 8% ends up owing over $148,000.00 after a five-year plan if the loan is simply put on hold. The Portal is also designed to accommodate settlements of private student loans via a mediation. The automatic stay will be lifted as to matters addressed via the portal.
In a similar vein, in 2010, the MDFL implemented a Mortgage Modification Program to assist debtors in seeking mortgage modification. The MMM program uses a portal to exchange documentation and communicate with mortgage servicers. It has been a great success, has reduced litigation and is recommended by mortgage creditors as a “model” for bankruptcy loss mitigation programs. It has been duplicated in many bankruptcy courts across the country and has saved thousands of borrowers from homelessness.
While I don’t generally post our client reviews, there are times where I simply can’t help myself. This one in particular shows the difference between having an advocate on your side versus getting your information from the student loan servicer — who by the way represents the creditor only. They do NOT represent the borrower.
Nothing short of FANTASTIC!!
Who are all these people? People who want to put an end to the student loan crisis. Most are Bankruptcy Judges from the Middle, Southern and Northern Districts. The rest are us committee members who helped to put in place a new Student Loan Modification Program which goes into effect September 1, 2019 for the Middle District of Florida.
As I like to put it, the idea behind the Student Loan Modification program is to: 1) increase communication between bankruptcy debtors and student loan servicers; 2) increase awareness of various options available to reduce student loan debt; and 3) end the needless forbearance and accrual of yet more debt in bankruptcy by providing easier access and instructions for federal programs as well as mediation opportunities for private student loans.
I have a few trainings scheduled in the near future for other bankruptcy attorneys who have requested this:
Rogers v. Rogers, 12 So.3d 288 stands for the general proposition that student loan debt incurred during the marriage is a marital liability. See, e.g. Smith, 934 So.2d 636, at 641; Adams v. Cook, 969 So.2d 1185, 1187 (Fla. 5th DCA 2007); Banton v. Parker-Banton, 756 So.2d 155, 156 (Fla. 4th DCA 2000); see also Section 61.075(5)(a)(1). Thus, in the absence of specific findings supporting the unequal distribution of a student loan debt, such debt must be equitably distributed between the parties. See Smith, 934 So.2d at 641; Adams, 969 So.2d at 1187.
The fact that one party will not receive any benefit from the other party’s education because of the dissolution is NOT a factor to be considered when allocating a marital debt for student loans. See Smith, 934 So.2d at 641; Adams, 969 So.2d at 1187. Thus, absent some other justification for an unequal distribution, controlling case law forbids a trial court from awarding student loan debt incurred during the marriage solely to one party or the other.
If the loans were taken out before the marriage, then they would be non-marital debt.
Which is the better option?
Debt management plans have no guarantee that the creditor will accept a negotiated discount. Debt consolidators charge a fee regardless of whether a settlement is reached and often years go by with credit scores dwindling each month. It’s often better to reach a deal with the creditor directly then try to include them in a debt consolidation plan. Lump sums are needed. 1099s are sent for any forgiven amounts leading to a tax bill. Any negotiated agreement must be in writing preferably with a line item deletion with the credit reporting agencies or at least reflecting the debt as paid in full.
Bankruptcy, particularly a Chapter 7, is often much faster — only three months for a Chapter 7 discharge. While a Chapter 7 will remain on someone’s credit for 10 years, most people are able to get their credit score back up to high 600s or low 700s within six months to two years. Bankruptcy is a legal mechanism intended to let people start fresh and credit rebuilding takes much less time than most people think.
Many Floridians have moved beyond the foreclosure crisis and are now in the market to buy a home – we have some credit rebuilding tips in our free e-book “Reboot Your Life After Bankruptcy” https://www.christiearkovich.com/free-ebook-download_1.html. This e-book is not just for those in bankruptcy, but it also may help those who went through a short sale, foreclosure, deed in lieu or simply collection actions and debt settlements.
Until October 31, 2019, Bank of America is offering a new program to price match for interest rates AND will offer ZERO origination points for certain mortgages. In a study from Lending Tree, 60% of customers pay between $1,000 and $5,000 in origination fees. In high-priced markets, a lender can charge over $10,000 in origination fees.
We are developing a series of Home Buying Tips to appear on our blog and website. These will focus on those who have had financial or legal challenges to overcome. We don’t know what’s the best school district or things like that, but we do know a lot about how to easily qualify for a home purchase within your means – or even to purchase an investment home/duplex/small apartment building.
The report found about half of our households live paycheck to paycheck. 19% have zero in savings, while 31% have less than $500.
It’s no surprise that nearly half described themselves as “concerned, anxious or fearful” about their current financial well being. Keep in mind the survey was taken in the midst of a booming economy.