President Obama’s Pay As You Earn program has been in the news a lot. It’s an effective way for many student loan borrowers to lower their monthly payments -- but it’s not the only way. There are many options for relief from student loan debt, depending on what kind of loans you have, when you took them out, and what your financial situation looks like now.
Before you start exploring ways to shrink your monthly obligations, know that you should consider reducing or postponing your student loan payments only if the standard repayment plan (10 years for most loans) is truly out of your financial reach. more...
When you graduate from college, you usually won't have to start paying your student loans immediately. Most student loans include an automatic grace period of at least six months. But after that grace period ends, there are just two ways to delay student loan repayment -- deferment or forbearance.
Getting a deferment or forbearance can be a life saver if you have explored options for reducing your payments and still find yourself unable to meet your financial obligations. Still, you should use these postponement tools sparingly and with a full understanding of how they work. In many cases, interest will continue to accrue during a deferment or forbearance, and this can dramatically increase the amount you will have to pay later.
“This latest bankruptcy legislation is part of an ongoing effort to provide more student loan relief, particularly as as result of Covid-19. For example, Student Debt Crisis, a leading student loan advocacy not-profit, recently sent Sen. Elizabeth Warren (D-MA) a petition for student loan forgiveness with 1.2 million signatures. Warren, who proposed student loan forgiveness for 95% of Americans, has been a proponent of student loan forgiveness and student loan debt cancellation. Scanlon’s legislation would make it easier by amending Chapter 11 of the U.S. Bankruptcy Code, although the requirements to qualify may be challenging for some. Student loan forgiveness has been a hot topic in Congress, particularly in the wake of the Covid-19 pandemic. For example, former Vice President Joe Biden reiterated his support for student loan forgiveness and his support to discharge student loans in bankruptcy. Other members of Congress have proposed legislation to forgive student loans, although none have become law.
Will student loans be included in the new stimulus?
Maybe. It’s unlikely that this bill or a similar bill to discharge student loans in bankruptcy will be included in the new stimulus. The new stimulus package may be introduced next week. Currently, the focus includes second stimulus checks, state and local aid, unemployment benefits or a return-to-work bonus and liability protection due to Covid-19 for businesses. However, don’t expect student loan forgiveness to be included. However, Congress may extend student loan relief under the Cares Act, or Congress could allow the student loan relief to expire as planned on September 30, 2020. That said, student loans have not been the focus among Republicans (who control the Senate) among other high priority issues. There is bipartisan support to make student loans dischargeable in bankruptcy, but there may not be consensus to act until after the election in the next Congress.
“Many federal student-loan borrowers got some welcome relief in March, thanks to federal legislation passed in response to the coronavirus pandemic.
But what about students who borrowed from private lenders? For them, it’s a much muddier picture.
The federal economic-relief package known as the Cares Act allows many federal student-loan borrowers to skip payments until October without accruing interest. The law, however, doesn’t apply to private loans and Federal Family Education Loans held by private lenders such as commercial banks.
As a result, many private lenders are offering pandemic-related relief. However, the offers vary and generally aren’t as extensive as what is available under the federal law. About 70% of private loan-holders who requested relief directly from their lenders have received it, according to a recent poll of more than 1,000 borrowers by LendingTree’s Student Loan Hero division. Many borrowers don’t realize assistance may be available, however, and don’t call their servicer to seek help.
Joshua Cohen - The Student Loan Lawyer - Sat, Jun 27, 2020
“A detailed discussion of the Borrower Defense to Repayment (DTR).
This is a facebook live broadcast where Student Loan Lawyer Joshua Cohen explains how the government is weakening the DTR rules to benefit corrupt for-profit schools.”
“There are increasingly urgent signs that an unprecedented wave of student loan defaults could be arriving within a matter of months. A cratering economy and expanding pandemic are about to collide with the expiration of critical temporary student loan relief programs, and the end result could be catastrophic.
Here’s what’s going on.
The Economy Continues To Stagnate
The Pandemic Appears To Be Worsening
Federal Student Loan Relief Under The CARES Act Ends Soon
Temporary Private Student Loan Relief Expires Imminently
The Democratic-controlled House of Representatives recently passed the HEROES Act, which would extend the CARES Act’s student loan provisions by a full year to September of 2021. But Senate Republicans have rejected this bill. A coalition of over 60 organizations have also called on Congress to extend the CARES Act for student loan borrowers and forgive a substantial amount of student loan debt, although Senate GOP leaders have shown no interest in such broad relief to date.
Without a bipartisan solution, student loan borrowers will start falling into default at an ever-increasing rate. Time is running out.”
“THE TRUMP administration rejected a website that the Education Department's Federal Student Aid office designed to help students who have been defrauded by their colleges apply for loan forgiveness, arguing the tool made the process too easy, according to a whistleblower complaint.
The Trump administration recently rewrote the borrower defense rule and the new website was supposed to reflect the changes to the rule as well as streamline the application process so that claims could be processed more easily. As it stands, the Education Department has a backlog of roughly 200,000 claims.
But problems arose in late February, the whistleblower says, just days before the country went into lockdown to stem the spread of the coronavirus, when Diane Auer Jones, principal deputy undersecretary at the Education Department, asked to meet with the team in charge of developing the new borrower defense website and instantly pushed back on some of the more user-friendly features of the site. That's when the whistleblower, a career staffer who was involved in the development of the website, first lodged a complaint with the Office of Inspector General, noting that Jones, who is a political appointee, was not respecting the firewall that's supposed to exist between the Education Department and the Federal Student Aid office.”
- The Project on Predatory Student Lending - Harvard/LSC - Tue, Jun 9, 2020
“WASHINGTON, D.C. – A Trump administration rule that denies loan relief to many students cheated by their schools is deeply flawed and should be overturned, Public Citizen and the Project on Predatory Student Lending told a court today. The groups represent student borrowers in a lawsuit challenging the U.S. Department of Education’s new “partial relief” rule.
The rule sets forth the methodology by which the department decides whether and how much relief to give borrowers who have demonstrated that they were cheated by the schools they attended. Under the rule, most borrowers whose claims are approved receive only partial or no relief on their student-loan debt.
“Federal law allows students to seek cancellation of their federal student loans if the school they attended misled them. Since taking office, Education Secretary Betsy DeVos has made several failed attempts to block loan cancellation for students. This is the department’s second attempt at devising a “partial relief” methodology that denies most relief to defrauded student borrowers. The Project on Predatory Student Lending challenged the first rule, which was blocked by a federal court in May 2018, after the court concluded that the rule likely violated a federal law called the Privacy Act.
Under the new rule, issued in December 2019, the Department ignores evidence submitted by borrowers about how their schools’ actions harmed them. Instead, it bases its relief determinations solely on a comparison of the median earnings of recent graduates of the borrower’s program to the earnings of recent graduates of other programs the department deems similar. As the complaint explains, although the Department claims that its formula is based on statistics, it ignores basic statistical principles.”
“There are several hot button issues regarding your student loans. With multiple proposals in Congress and on the presidential campaign trail, it’s possible that some student loan changes may be coming soon. The outcome of the 2020 election, the trajectory of the COVID-19 pandemic and the speed of economic recovery are several factors that could impact your student loans. If these proposals become law, they could have a major impact on your financial life. Here are some key student loan issues to watch:
Student Loan Forgiveness
Student loan forgiveness is one of the hottest topics in student loans. There are many ways to get student loan forgiveness, but most options take many years. There have been multiple proposals to cancel student loan debt, particularly in Congress. For example, U.S. House Democrats proposed $30,000 of student loan forgiveness, while a U.S. Senate student loan forgiveness plan would forgive at least $10,000 of federal student loans for all borrowers. Most recently, the Heroes Act included a proposal to cancel $10,000 of student loans for your federal student loans and $10,000 of private student loan forgiveness. However, before the bill was passed in the House, House Democrats amended the Heroes Act and weakened the final provision for student loan forgiveness. The Heroes Act is unlikely to become law in its current form, which is one reason that you should not expect any new student loan forgiveness soon. Will student loan debt get cancelled? Stay tuned.
If you have more student loan debt than you can comfortably handle, there may come a time when you're tempted to throw up your hands and stop making payments. Not so fast. The consequences of student loan default are harsh -- see What Happens If I Default on My Student Loans -- and defaulting will dramatically increase your debt headaches.
Here are some suggestions to help you stay out of default.
Getting Organized: Strategies for Managing Student Loan Payments
Sometimes people who have enough income to pay off their loans end up in default because of poorly organized records. You can take some simple steps to get your paperwork together and reduce the chances that a loan will fall through the cracks.
Consolidating your student loans may make it easier for you to live with them. At best, it could reduce your monthly loan payments, cut your interest rate, and ease the burdens of recordkeeping. At worst, it won't help with any of these concerns -- and it could cost you important benefits associated with your federal student loans.
If you're considering student loan consolidation, it's essential that you know the terms of your existing loans and understand how consolidation works before you proceed.
What Is Student Loan Consolidation?
Loan consolidation is a process that lets you replace multiple student loans with a new loan from a single lender. The interest rate on the consolidation loan will be based on the average interest rates of all the loans that you consolidate.
EXAMPLE: If you consolidate a $5,000 loan at 6.8% interest and a $10,000 loan at 6.0% interest, your new interest rate will be $6.375%. (To figure out the consolidation interest rate for your loans, you can use the FinAid Loan Consolidation Calculator.)
Most federal student loans default when the borrower fails to make payments for 270 days (nine months). Private loans may have different terms; they may default if you miss just one payment. Read your loan contracts carefully to be sure you understand when you're at risk for defaulting -- then do all you can to avoid it.
The following lists should convince you that defaulting on your student loans can lead to overwhelmingly negative consequences.
Student Loan Default: Consequences and Penalties
If your student loans go into default, here are some of the difficulties you may face:
If you've defaulted on a student loan, how to get out of default depends on whether the loan is federal or private.
Getting Your Federal Student Loans Out of Default
Your options for getting your federal student loans out of default include:
repaying the loans
rehabilitating the loans, or
consolidating the loans.
Paying off your loans. This is the fastest (and usually the least expensive) way to clear your default. Of course, if you could just pay off the debt, you probably wouldn't be in default. Most borrowers in default can't afford this option and must consider loan rehabilitation or consolidation.
If your student loans are canceled, you don’t have to repay them. To qualify for loan cancellation (also called "discharge"), you must meet very specific requirements that depend on the type of student loans you have and when you got them.
Student loan forgiveness programs can bring great relief to borrowers who qualify, and now many people may qualify for them and not even realize it!
If you DO qualify, they are a magic bullet. But to qualify you muyst work hard for them, serving your community for 10 years or more, and making regular payments for 10 years, after which your entire remaining balance on the loans is erased!
The program was launched in 2007, and the right kind of qualifying loans didn't become common until 2009, so it's only recently, as of 2019 and 2020 that people just now are eligible to qualify for getting their remaining payment wiped out.
Folks who benefit from forgiveness programs usually work for low pay in jobs that help others -- for example, teachers, public defenders, or health care professionals working with populations in need.
If you have worked in a government or non-profit job for 10 years and have been making IDR payments on your direct student loan for 120 payments, you may qualify to have the remaining payments eliminated.
Federal Public Service Loan Forgiveness (PSLF) Program. IT WORKS! It is NOT DEAD!
The best known and most widely used student loan forgiveness program is the federal government's public service program. The goal of the program is to encourage graduates to work full-time in public service jobs.
Under the program, the government will forgive a borrower's
Direct Federal Loans,
after they have made 120 regular IDR payments -- that's ten years' worth --
while working full time for a federal, state, or local government agency or for a nonprofit organization.
Despite what you may have heard, Pubic Service Loan Forgiveness is NOT Dead!
You may have heard, a while ago that 99% of PSLF applications were denied. True! BUT, according to the The Student Loan Lawyer, Joshua Cohen, those applications were rightly denied, because they lacked one of the three essential elements required for Public Service Loan Forgiveness.
If you think you need a lawyer to help with your student loan troubles, slow down. Most repayment problems can be solved without a lawyer. A lawyer may tell you they can teach you about repayment options, help you lower or postpone your payments, reduce your interest rates, or get your loans forgiven. But consumer-friendly, no-cost resources exist to help you with all of these tasks and more.
Disputes with a loan servicer. If you run into difficulties with a loan servicer, you may be able to get help without calling a lawyer. Many free student loan ombudsman programs are available to help you resolve conflicts. For details, see How to Get Help With Student Loan Problems.
Getting rid of student loans in bankruptcy is difficult -- but it’s not always impossible. To succeed, you must convince the court that repaying your student loans would cause you "undue hardship."
Bankruptcy: A Brief Overview
You probably already know that bankruptcy is a court procedure you can use to get your debts erased or reduced. But you may not know there are two different kinds of bankruptcy proceedings.
Liquidation (Chapter 7) bankruptcy. Chapter 7 is the most common type of bankruptcy. When you file for Chapter 7, you may have to surrender some of your property to pay creditors, but the end result is that most of your debt will be completely wiped out. But student loans are a big exception to this rule; you must file additional paperwork and meet a high standard to discharge your student loans in a Chapter 7 case.