The new DOJ Guidance to discharge federal student loans in bankruptcy creates presumptions that the inability to repay a federal student loan will persist if:
Turns out yes. I just read a pretty cool story in the New Yorker about a 91 year old lady, perfectly healthy, obtained a full forgiveness under a “compromise and settlement authority” provided for under the Higher Education Act of 1965. Although it is a last ditch effort as there are many other ways to obtain forgiveness now.
There is an easier way. The IDR Waiver program will allow for someone like this to consolidate their older federal loans to Direct Loans (provided this is done before May 1, 2023), and after 20 years of repayment all undergrad loans would be forgiven. 25 years for grad loans. I believe this lady would have qualified for that as well – although I don’t have access to her loan history to know for certain.
But if you miss that May 1 deadline, or the IDR Waiver, TPD, BDTR or PSLF don’t fit your circumstances for some reason, then this is a way out – used mostly when the Department of Education believes it would be more costly to collect the loan, or when it cannot locate the original promissory note.
What is the IDR Waiver?
The Short Version: if you have an older FFEL loan, even a prior FFEL Consolidation Loan, make sure to consolidate this to a newer Direct Loan asap if you want all of the relief this program allows (contact us if you have any doubts or concerns about losing prior IDR time, interest rate increases, effects on PSLF etc.) While the deadline to do so is May 1, the servicers are busy and it doesn’t pay to wait until the deadline!!
For many years, student loan servicers steered struggling borrowers into forbearance instead of guiding them toward income driven repayment. Income driven payment generally caps payments at no more than 10 percent of income, and ultimately leads to loan forgiveness after 20 or 25 years of repayment. Many of these loan servicers also failed to accurately track borrowers’ progress toward forgiveness. Some of these companies had no system for tracking payments and identifying when borrowers would qualify for forgiveness.
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:
Consumer complaints in Florida have a few things going for them that can make them easy to prove.
One of the things that benefits Florida consumers is our use of the “least sophisticated” debtor test.
What does this actually mean?
First, and I must stress, EIDL loans are not forgivable. They were intended to help small businesses recover from the economic impacts of the Covid-19 pandemic.
However, EIDL Advance funds are like grants and do not have to be repaid.
More information is available on the SBA website: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl
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!
As we are getting closer to a repayment start date, I wanted to briefly mention that there are several things that should be considered before choosing to refinance a federal student loan:
Bankruptcy is not only for discharging credit cards!
New DOJ procedures allow us now to discharge federal student loans attesting to an undue hardship. We are co-presenting a webinar for the American Bankruptcy Institute on February 27 outlining this new program and helping our colleagues identify clients who may be eligible and learning how a bankruptcy filing can now discharge federal student loans.
Also, folks are receiving notices to begin repayments of EIDL, SBA or unforgiven PPP loans. Most of those loans are pretty sizable and can easily be discharged in a bankruptcy. We don’t recommend waiting to file. As it stands now, we don’t expect any challenges that these loans were fraudulently obtained, but that could change with a future administration.
Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog