Articles Posted in Student loans

Interesting times to be a student loan attorney.  Just this week, a key decision was issued by the Fifth Circuit in In re: Crocker, No. 18-20254 which discharged private student loans.  Why is this important?  Well, it’s the first published Circuit level case on this issue.  And the Court ruled against Navient!

Of course, you have to meet certain criteria to have a non-qualified student loan — the loans must have been outside or beyond the actual cost of education, or provided to an ineligible institution or ineligible student.

Which brings to mind, what is an ineligible institution?  Simple, one that was not eligible for federal funding.  Including a school which got federal aid under false pretenses.  Perhaps federal loans were provided to a for-profit school BEFORE they were actually eligible.  This opens a whole new batch of loans which may be discharged.

Sometimes, in a bankruptcy, we want to separately classify student loans, particularly federal student loans, where our client debtors can benefit from public service or income driven plans with debt forgiveness.  It’s also helpful to separately classify private student loans if we’ve otherwise reached a settlement agreement with the creditor.  The key is to avoid harm to the other unsecured creditors by doing so. 

As a student loan attorney, I find this appalling.  What if someone hired me as their attorney and I failed to comply with the law 61% of the time?  I bet I’d be hearing from the Florida Bar pretty quickly and I’d probably lose my license to practice law.

But what happens when the federal student loan servicers fail to comply with the law 61% of the time?  Well the Department of Education doesn’t really seem to care.

Here are some key points raised in a 52 page an audit by the Office of Inspector General released recently (that we’ve been liberally sharing with our bankruptcy judges to show why the new Student Loan Management Program in bankruptcy court is needed):

The TEPSLF was established for public service employees who had the correct loans, Direct loans, but were making a payment under a non-income driven plan – such as Extended, a 20-30 yr Standard, Graduated etc.  They key is you have to apply for PSLF, be denied, and then submit a second request to the TEPSLF as follows:

TEPSLF forgives debt for borrowers who meet the following requirements:

• Have at least 10 years of full-time work experience for a qualifying non-profit or government employer

If someone were to ask me what could be done legislatively to help student loan borrowers manage or reduce their student loan debt, I’d suggest and have suggested:

• 1) simplification of the IDR programs- President Trump has included this in the two most recent budget proposals – one plan that fits all paying 12.5% of discretionary income for 15 yrs – but it should based upon the borrower’s income, not including their spouse;
• 2) decrease interest rate for existing borrowers – many new federal loans are 3-4%, but many older ones are 6.8% which is high in today’s market, those with higher degrees range from 8-8.5%; and private loans are all over the place – 10-16% is not unheard of;