Reboot Your Life: Tampa Student Loan and Bankruptcy Attorney Blog
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.
I do hope we will see a vastly simpler system. It is so complex now and has been for years. I don’t see how anyone can keep up or know what to do half the time.
There are still some options — IBR and PSLF are still available and we believe will remain standing when the dust settles. I’ve beefed up my knowledge of forbearances in case that’s needed. We are seeing people get obscenely high student loan monthly bills based on their Standard plan. Here’s a link to the regulations where you can search for administrative forbearance. While I’m not a big fan of forbearance, it is far better than a default if you can’t pay and there are no other good options. In the meantime, if a borrower cannot recertify their income or cannot get into IBR, they should be placed in a discretionary forbearance if any is still available (i.e. 36 months of allowable forbearance per loan). If you would like for us to review your particular loans and recommend a strategy or go over your options, please click the blue box below. Or call us at 813-258-2808.
They key is don’t ignore your loans. Remember, federal student loans have no statute of limitations, relatively high interest rates averaging 6.9% nationally, and a default can substantially hurt your credit. Less options are available for defaulted federal student loans, and they add 25% to the balance when you default. I was reading that over 40% of borrowers are delinquent in their federal student loans. I think it was 43%. You can be delinquent for 9 months (270 days), so that’s nice. But once you default, you can’t just catch up like a normal loan. You have to rehabilitate or consolidate the loan. I call those “get out of jail cards”. If you’ve already done both, you could still cure a default in a Chapter 13 bankruptcy. But that’s it. I certainly wouldn’t want a default for life. You’d face garnishment by letter, maybe even sent to a prior address and lost. So no warning. Social security offset. Tax refund gone. Higher everything because of lower credit score. I am reading that some people are saying that if there won’t be a Department of Education, they won’t have to repay their loans. Or they simply will make the decision not to. Think about this carefully. In most circumstances, I couldn’t think of a worse way to deal with student loans! There’s usually a way to deal with them that’s legal and beneficial if you act promptly.
