More and more signs are pointing toward bankruptcy being the best platform going forward to address student loans. Why?
So I’m hearing that President Trump is moving the federal student loan system over to the Small Business Administration (“SBA”). I’m also hearing today that they are cutting the SBA’s workforce by 40%. Interesting. I admit, I was expecting big changes, but I didn’t really have this on the bingo card.
I have always been an advocate of looking at the ROI, return on investment, when deciding how much to pay for what degree. I imagine this change will only emphasize this. I’d hate to get a degree that resulted in unemployment or underemployment and then default on an SBA loan. The SBA has a reputation of playing hardball when it comes to negotiation of past due balances.
At least the SBA has a system in place for loans and the collections of loans. How they would incorporate all the Income Driven Plans and the other oddities and complexities of the federal system I really don’t know. Maybe they won’t or they will do only that which was passed by Congress like IBR and PSLF. I do know there was a report out by the Inspector General’s office a few years back that 62% of the time the dozen or so federal student loan servicers would do whatever wrong. So the bar is pretty low to do it correctly. I used to say that if I cited the wrong law or something 62% of the time, the Florida Bar would probably ensure my disbarment.
President Trump signed an executive order titled Restoring Public Service Loan Forgiveness a couple days ago. While this should have to go through the normal channel of rulemaking which will take approximately one year, it appears that PSLF will be excluded for non-profits which engage in a “substantial illegal purpose” including:
(a) aiding or abetting violations of 8 U.S.C. 1325 or other Federal immigration laws;
(b) supporting terrorism, including by facilitating funding to, or the operations of, cartels designated as Foreign Terrorist Organizations consistent with 8 U.S.C. 1189, or by engaging in violence for the purpose of obstructing or influencing Federal Government policy;
As I blogged about a couple weeks ago, you can check the amount of IDR time you have been credited for on studentaid.gov now. If for any reason it is not there, a private company has released the VIN Foundation Download My IDR Progress browser extension for Chrome. It allows a borrower to grab a copy of their IDR payment history showing the qualifying vs. ineligible payments.
Yesterday the new Secretary of Education, Linda McMahon, was confirmed so perhaps we will learn of some concrete plans for the Department of Education shortly.
Today’s webinar went off without a hitch – link here. I tried to update our fellow attorneys on what we are seeing or hearing out there in our student loan world. Lots of changes, practically to everything in fact.
Student Loan Essentials: Updates, Strategies, and Advocacy for Legal Aid Practitioners. It’s one hour and free.
This is approved for Florida Bar 1.0 General CLE credit – see link for specifics.
I read today in the Pomp Letter that the average credit card balance is $21,000. And the average interest rate is 28.6%. Just wow. In 30 months, the debt would double. In our bankruptcy practice here in Tampa, Florida, we are regularly seeing people with 100k of credit card debt.
Many people are making only minimum payments of their bills – 10.75% according to a new report from the Philadelphia Federal Reserve (reviewing data for the third quarter of 2024.
I don’t know how you get out of that – unless you file bankruptcy. Or have some kind of windfall such as a much better paying new job, inheritance or something. Even with a much better paying new job, you would have to dedicate funds quickly to pay down that debt. Back during the foreclosure crisis we ran into a lot of people who thought that they could easily catch up once they started working again. Didn’t happen. Even a $20k increase in pay is not that much paycheck to paycheck. With interest so high, the balances got even larger or remained the same.
So the big news in the world of student loans is that the online system has once again been shut down for consolidations and IDR applications – as of Friday, Feb 21. This is likely due to the 8th Circuit expanding its stay to stop all forgiveness under PAYE and ICR. For now, someone’s best bet for forgiveness is to get onto IBR – Income Based Repayment. IBR was Congressionally passed in 2009 and does not appear to be going anywhere. It’s a 25 year program that allows for full forgiveness of any remaining balance once 25 years of IBR credits is obtained.
The 8th Circuit also halted the IDR Recount. While we don’t believe that any loans previously forgiven will be reinstated, we really don’t know what will happen to those pending loans benefitting from the IDR Recount – but still have months or years to go. The best we can say is to keep copies and screenshots of anything to do with the IDR Recount. You may need this one day.
So why is the consolidation button greyed out? Both FFEL loans and Direct Loans are eligible for IBR. So a consolidation isn’t necessary for IBR. If the government is discouraging Double Consolidation for Parent Plus loans, PAYE, ICR and the IDR Recount, there really isn’t a reason to consolidate older federal student loans under the FFEL system to the newer Direct loans. Also the government has to pay the private originators of a FFEL loan upon its consolidation to a Direct loan. It doesn’t want to do that.
A post on Theresa Sweet’s [Plaintiff in Sweet v. Cardona’s class action BDTR lawsuit] Facebook page says the majority of workers reviewing BDTR claims have been laid off and majority of Ombudsman staff have been fired.
For several months now, we have been of the opinion that while filing a Borrower Defense to Repayment application is free and available, we do not expect to see any discharges any time soon for new applications that are filed after the Cardona class action settlement. You may expect to see a forbearance due to the filing, but use it more as a place marker to give you time to explore and take advantage of other ways to deal with your student loans.
Please see our last blog re: documents/downloads you should do now to keep track of your records.
While it is unlikely that the Trump administration will close the Department of Education anytime soon, it is clear that ED will be dismantled in some form over the next few months to years. Many of its functions may discontinue or be passed to other federal or even state agencies.
It may be important to download information now while it is easily accessible to save time in the future. You may need to prove loan balances, payments and the like to protect yourself in case of inaccuracies with a systemic change. We would suggest that you download your StudentAid.gov records (NSLDS file, dashboard screenshot, PSLF and IDR tracking details), and your loan servicer records (payment histories, key notices/letters).
Keep this information just in case.
During all the hoopla surrounding student loans last year, probably the best program (TPD) out there gets so little attention. Right now, that’s probably a good thing right?
I’m talking about the ability for someone who is unable to work a full time job doing what they used to do actually getting a discharge of their student loans due to that inability to work. The test doesn’t read like that exactly, but it’s far from the SSD questions of “Can you feed yourself?” “Can you dress yourself?” We’ve long obtained full discharges within a remarkably small time frame of as little as 60-90 days using the TPD program. We focus on someone’s vocation, what they were trained to do, their experience and actual abilities. Age matters as well, our best chances exist when we have someone who is 55 or older with cognitive issues. My former experience as an employment attorney and the use of the ADA and FMLA I think helps to understand and process these claims. Our streamlined process includes medical professionals who can see our clients via Zoom or in our office in Tampa.
As this program, which has been paused for a couple months, begins anew, we expect some changes. It’s possible that the test will be more stringently applied. That’s good and to be commended. We don’t want people who aren’t deserving of this discharge to get it either. However, our clients have had long term illnesses and/or injuries that have made it next to impossible to pay their student loans back. The income simply isn’t there and often hasn’t been for a long time. Getting a TPD discharge can be life changing now b/c it will get rid of that fear of the government coming after someone or their social security for students. This includes even Parent Plus loans. In fact, it may be the only solution for those with Parent Plus loans!
Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog