What can I do about Defaulted Student Loans?
The 2016 Department of Education website for Alternative Student Loan Repayment plans: The Department of Education has created a very straight forward website to assist student loan borrowers in determining what alternative repayment options are available to them. The website asks up to five questions about the student loan and about the borrower’s current employment and payment preferences to determine what repayment options are available. These questions include:
(1) Do you have federal loans?
(2) Did you take out the loans before 2011?
(3) Do you work for the government or a non-profit?
(4) Have you ever missed a payment because you could not afford it?
(5) Do you want to lower your monthly payment?
Using the responses from these five questions, the website will provide the various alternative repayment options for the borrower as well as a step- by-step instruction on how to start the application process and what documentation will be needed to complete the process. The website can be found at : http://Studentloans.gov/repay
There are hundreds of articles about student loans. The following is just a few and is most likely not up to date.
Loan Cancellations/Discharges That Student Loan, So Hard to Shake, by Jonathan Glater NY Times 8/24/08, American Federation of Teacher Loan Forgiveness Program, The Real Student Loans Scandal and Hardship Discharge IBO Info: an independent, non-profit source of information about new federal student loan payment and forgiveness programs: http://www.ibrinfo.org/ 2012 – Student Loan Ombudsman: http://www.consumerhelpcentral.com/federal-student-loan-ombudsman/?goback=%2Egde_1471397_member_133848648 Garnishment by Student Loan: Re administrative wage garnishments (AWG), it used to be that only 10% could be garnished, but for the Dept of Ed, it is apparently now up to 15% of disposable pay under 31 U.S.C. § 3720D, enacted by Section 31001(o) of the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134,110 Stat. 1321-358 (Apr. 26, 1996).It is possible that student loan guarantors may still be held to that 10% cap, but I am not sure. See 20 U.S.C. § 1095a. Federal law only allows up to 25% withholding if there are other garnishment writs in place (except child support, etc.). See 15 U.S.C. § 1673. Administrative Discharge for Student Loans form. It is the most current version and if your clients have a permanent and total disability that may prevent them from repaying the loan, it may be a good way to eliminate that debt. Of course the Administrative Discharge may result in a forgiveness of debt income situation thus possibly resulting in tax liability unless the debtor is otherwise insolvent. Here is the web site for the application. http://www.ecsi.net/bwr/forms/dis_discharge.pdf
For additional questions talk to The Dept of Ed’s administrative wage garnishment.
They can be reached at: Administrative Wage Garnishment Branch (AWG) at (404) 562-6013 or email at firstname.lastname@example.org. Bankruptcy: Currently the only ground for discharging a student loan in bankruptcy is if the student can show that repayment will “impose an undue hardship on the debtor and debtor’s dependents.” For cases filed after October 7, 1998, there is no longer a discharge for loans more than seven years old. For more information about discharging student loans in bankruptcy, see NCLC’s publications Student Loan Law and Consumer Bankruptcy Law and Practice. State Discharges: State tuition recovery funds (STRFs) can be a valuable source of relief for defrauded students where a school is insolvent and where the student cannot obtain a federal discharge. The majority of states have either a STRF or a bond program to reimburse defrauded students.
Federal Loan Cancellations
In limited circumstances, borrowers may be able to completely cancel their federal student loans. Borrowers that receive loan cancellations are also eligible for reimbursement for previous payments (including tax refunds seized by the IRS and payments made by the borrower) and cleaning up of credit report problems due to student loan defaults. These critical rights are summarized below. A. Closed School Discharge (34 C.F.R. §682.402(d)-FFEL loans) Applies only to loans received at least in part on or after January 1, 1986. Students must have been enrolled at the time of school closure or they withdrew, the withdrawal had to have occurred within 90 days of closure. The Department of Education maintains a list of official closure dates. B. False Certification Discharge (34 C.F.R. §682.402(e)-FFEL loans) Applies only to FFEL or Direct loans received at least in part on or after January 1, 1986. Perkins loans are not eligible. To qualify, student must show that their eligibility to borrow was falsely certified by the school. In most cases, students with high school diplomas or G.E.D.s at the time of admission are not qualified. There are exceptions to the high school diploma requirement: A student may qualify if s/he was unable to meet minimum state employment requirements for the job for which the student was being trained, or if the school forged or altered the loan note or check endorsements. C. Unpaid Refund Discharge (34 C.F.R. §682.402(l) A new discharge was passed as part of the 1998 Higher Education Act allowing students to discharge loan liability for loans obtained after January 1, 1986 to the extent of the amount of a refund that a school owed the student and failed to pay. Perkins loans are not eligible, but borrowers can already raise an unpaid refund as a defense in Perkins collection actions. D. Disability Discharge (34 C.F.R. §682.402(c) Borrowers can discharge loans if they can document a permanent and total disability. Pre-existing conditions qualify only if there has been deterioration. Forms for all of these Back to top ↑discharges are available on-line at: Closed School False Certification of Ability to Benefit Particularly for false certification and unpaid refund discharges, borrowers often need to submit evidence of school fraud. NCLC has information in its files on a limited number of schools. Additional information about government investigations of schools can be found on the web site of the Department of Education’s Office of Inspector General and the Department’s Office of Hearings and Appeals College Cost Reduction and Access Act – Struggling with Student Loans?
New Federal Rules May Help, July, 2009 If your student loan balances make you feel like a member of the Class of Forever, help may be here. It’s not exactly a bailout, but a number of federal student loan rule changes that went into effect this week are aimed at lightening the repayment load for overburdened borrowers. Lower Interest Rates. As of this week, people with older student loans will catch a bit of a break. For federal loans issued before July 1, 2006, the interest rate will be reduced to 2.48 percent, down from the current 4.21 percent rate. And the interest rate on new subsidized federal Stafford loans will fall to 5.6 percent (down from 6 percent), as the Chicago Sun-Times reports. Relaxed Loan Forgiveness for Public Service Jobs. If your job relates to public service — if you work for the government, teach in public schools, or are employed by a qualifying non-profit, for example — you may be able to have your entire student loan obligation forgiven (erased) after 10 years. This is down from the previous 25-year forgiveness standard, according to Reuters. Income-Based Repayment.
A new income-based federal student loan repayment option also went into effect this week. It lets borrowers set up a monthly student loan repayment that is as low as 15 percent of their adjusted gross income for the year. As CNN points out, while the income-based option can make payments significantly lower, the loans themselves could take longer to repay, meaning more interest is paid. But the trade-off may be worth it for some borrowers. Many of the new federal student loan rules going into effect this week are part of the College Cost Reduction and Access Act, which was signed into law in 2007.
In addition to the features outlined above, the Act extended federal Pell and TEACH Grant funding, and increased income protection allowances for many students. Additional Resources regarding student loans: See this web site for a good article and links to other legal references. Or check out the information at FinAid.org