Last week Donald Trump, the presumptive presidential nominee for the Republican party, came out with some policy proposals for higher education and student loan reform. The campaign has indicated that these are somewhat informal policy ideas, rather than concrete proposals (which will be unveiled at an unspecified later date). Nevertheless, perhaps unsurprisingly, there have been some strong reactions. Here’s an overview.Read More
Of the $1.3 trillion in outstanding federal student loan debt, the vast majority of it (somewhere around $900 billion, maybe more) is federal. One of the biggest hurdles facing federal student loan borrowers right now is high interest rates.
Federal student loan interest rates are set by Congress. While leaders from both parties touted the success of a bipartisan interest rate reduction bill passed by Congress and signed by the President a couple of years ago, this was merely a temporary fix. And the price of that fix is steadily increasing federal student loan interest rates across the board – especially for graduate students, who could see interest rates approach 10% in the coming years.
How big of a difference can a student loan’s interest rate make? Pretty big, to be honest. Read More
In two recent moves, the federal government is fast-tracking federal student loan forgiveness for hundreds of thousands of borrowers who need it most.
First, the U.S. Dept. of Education has announced that it is streamlining and fast-tracking loan forgiveness requests for student loan borrowers who attended the now-defunct Corinthian Colleges chain. Thousands of students have submitted requests for debt relief under the poorly-defined “Defense to Repayment” clause, and the Department has been slow to respond since there is no formal application or defined process for review. However, the government just announced the creation of a simple online form that former Corinthian students can complete to request forgiveness under Defense to Repayment. Former students of 91 campuses in 20 states will be granted automatic federal student loan forgiveness after submitting this form. This has the potential to benefit nearly 100,000 students who were defrauded by Corinthian. If the Department expands loan forgiveness eligibility to graduates of all Corinthian campuses (it is unclear if this will actually happen), approximately 350,000 former students may benefit.
This week, the Obama administration also announced the fast-tracking of federal student loan discharges for borrowers who are totally and permanently disabled. A disability discharge has existed for federal student loan borrowers for quite some time, but few people know that this program even exists. Furthermore, the disability discharge application process has historically been a long, complicated and heavily bureaucratic experience, effectively locking out many borrowers who would clearly be eligible. The federal government intends to address these problems by proactively reaching out to federal student loan borrowers who would, under federal law, be automatically eligible for a disability discharge due to their disability designation by the Social Security Administration. This has never happened before, and nearly 400,000 disabled borrowers may benefit from these outreach efforts.
All in all, this is excellent news for student loan borrowers who are struggling with debt that they will never be able to repay – either because of a disabling impairment that prevents them from working, or because of a predatory educational institution that engaged in fraud and other illegal conduct. This is part of a larger effort by the Obama administration to more strongly address the student debt crisis – it’s certainly not enough to address the systemwide problems, but it’s something, and more may be on the way. Stay tuned.
If you’re a regular reader of my blog, then I might sound like a bit of a broken record when I say that student loan reform is going to happen. Well, it is.
First of all, there is widespread, bipartisan agreement that our current system is flawed and unsustainable. Furthermore, the U.S. Dept. of Education will soon be selecting (or renewing) contracts for federal student loan servicing and debt collection, two areas that need some major industry-wide changes. Moreover, even now, the U.S. Dept. of Education is in the process of creating new regulations governing loan forgiveness and for-profit schools. And finally, the Higher Education Act (HEA), which is the statute that governs much of the federal student loan system, is up for reauthorization; the process of reauthorizing the HEA has historically been a vehicle for making big changes to the overall federal aid system.
Reform is happening. But what is that reform ultimately going to look like?
There are a lot of proposals out there from presidential candidates, lawmakers, think tanks, advocacy and policy organizations, and many other stakeholders. There are proposals for free public postsecondary education. There are calls to allow borrowers to refinance their student loans at lower interest rates. There are proposals to streamline income-driven repayment plans by combining several confusing plans into one and creating a system of automatic payments through payroll deductions or the IRS tax filing system. There are ideas to better “target” safety net programs like loan forgiveness and discharges (which could mean a variety of things).
If only there was an existing blueprint of a student loan system that generally works, or at least works better than what we have now…Read More
Many private student loan contracts have a tiny little clause, hidden away in the obscure depths of the fine print. It’s written in formal and somewhat vague language, but it basically says that if the cosigner or the borrower dies or declares bankruptcy, the entire balance of the private student loan is due immediately. This can be true even where the borrower (or cosigner) has been making regular, on-time monthly installment payments and can continue to do so.
I call this the “death and bankruptcy clause.” It’s essentially an automatic default: if you can’t pay the entire loan balance right then, the “accelerated” loan will go into default and collections. Sometimes, borrowers are not even notified of the situation until the loan has been placed with a third-party debt collector and has been reported to national credit bureaus as charged-off or defaulted.
As you can imagine, this leads to terrible situations. Imagine a borrower who has a good job and is making regular payments, when the cosigner (perhaps a well-meaning family member who got into trouble, or an ex-spouse who the borrower hasn’t heard from in years) declares bankruptcy. Suddenly, the student loan is in default. Or how about the situation where the borrower’s mother dies – mom is a cosigner on the borrower’s private student loan, and hasn’t really had much to do with the loan since she originally signed for it. But now, the borrower is going to have to deal with default and a collections agency, on top of the grief of losing a parent.
Absurd, isn’t it?
Well, this little clause from hell might be getting extinguished.Read More
This week, the U.S. Department of Education announced the creation of a new Enforcement Unit to target colleges and universities that engage in misconduct and deceptive practices. The new unit will be comprised of three components:
- An investigative team that will audit colleges and universities;
- A sanctions board that will punish colleges and universities who engage in misconduct (presumably by cutting off federal student aid, which often is key to funding these schools); and
- A team of attorneys to review requests by borrowers for student loan forgiveness based on unfair and deceptive practices by schools.
Some other key facts about this new unit:Read More
The student loan debt crisis seems to only be deepening as the costs of higher education continues to climb, students take on more and more debt, and a greater percentage of borrowers find themselves in financial distress.
Even with recent reforms to student loan programs, including the introduction of two new income-driven repayment plans, PAYE and REPAYE, millions continue to struggle. Check out the latest figures:Read More
This is a question I’ve been getting a lot lately, and it’s no surprise. Public Service Loan Forgiveness (PSLF) is one of the most beneficial federal student loan programs available to borrowers, providing a critical safety net to people who work in generally lower-paying government and non-profit jobs that also require a college degree (and often a graduate or professional degree, as well).
PSLF has been recently targeted by some politicians and segments of the media as a wasteful program that is being “abused.” In particular, the media has been focusing on doctors and lawyers, who often have the highest levels of student loan debt and may get substantial portions of it forgiven under the program. Of course, these stories often fail to note that PSLF may be one of the few reasons an attorney would choose to work as a public defender, assistant district attorney, or in legal services (high-need and high-stress occupations with starting salaries typically in the $40,000’s), or why a doctor would choose to work in a high-risk, public, rural, or correctional medical facility where the pay is often a fraction of private practice salaries. The articles also tend to downplay the fact that all borrowers on track for PSLF must make at least 120 monthly payments (10 years) before they can even apply for forgiveness, just like all of the teachers, nurses, police officers, firefighters, and career soldiers who may also benefit from PSLF’s safety net.
But no borrower is eligible for forgiveness under PSLF until 2017, and news has been swirling about proposals to modify or eliminate the program. Let’s take a look at what’s actually going on here, and what may be possible down the road.Read More
Happy New Year, and welcome to 2016!
2015 was a big year in student loan law. We saw the collapse of major for-profit colleges and the abrupt downfall of a major student loan assistance company. In what may come to be viewed as historically significant acts of civil disobedience, a sizeable contingent of student loan borrowers began a debt strike to protest the collusion of the federal student loan system and predatory for-profit colleges; protesters are demanding that their federal student loan debts be canceled. Meanwhile, consumer advocates became increasingly vocal in their criticisms of the U.S. Dept. of Education’s servicing and debt collection practices, sending waves through the industry. The year ended with the rollout of REPAYE, a new income-driven repayment plan for federal student loans.
What a year. Here’s what to expect (and what not to expect) during 2016:Read More
Amidst a growing uproar from student loan borrowers and advocates about the dismal state of federal student loan servicing, the U.S. Dept. of Education has announced that it intends on creating a centralized web portal that will allow borrowers to make payments on their federal student loans – effectively bypassing third-party contracted loan servicing companies such as Navient, NelNet, FedLoan Servicing/PHEAA, and Great Lakes Higher Education.
A recent report published by Bloomberg News revealed that the U.S. Dept. of Education paid $576 million in fees to its contracted loan servicers, just in the last fiscal year. The Department said that it expects to pay its loan servicers a whopping $804 million this year. Despite these massive payments (your tax dollars at work), many borrowers encounter serious problems with their loan servicers including lost documents and payments, improper calculations of monthly payments, misapplied payments, and poor record keeping. I consistently see these types of problems as a student loan lawyer.
While few details about this new payment system have been released, a U.S. Dept. of Education spokesperson said that the administration is working to “implement a single Department of Education student loan portal for all borrowers … hoping to make things clearer, simpler and less confusing for every borrower.” No word on a specific timeframe for the program’s rollout.
Will this new program help borrowers repay their student loans and avoid servicing problems? Time will tell. Stay tuned – let’s see if they can even get this system up and running.
Source: The Huffington Post.