Boston Student Loan Lawyer

Law Office of Adam S. Minsky

3 Ways a National Default May Impact Your Student Loans

| Default

If you’ve been following the news over the past few weeks, you know that Congress and the President have been locked in a bitter debate about the nation’s debt ceiling. The debate boils down to this: the U.S. government spends more money that it receives in revenue, and has been doing so since the country had a surplus in the late 1990’s (government spending particularly skyrocketed following the beginning of the wars in Afghanistan and Iraq in the early 2000’s). We’re about to hit the upper limit of what the U.S. government can borrow under Congressional authorization; in other words, we’re about to “max out” the country’s credit card. If the debt limit isn’t raised by August 2, 2011, and we max out this national credit card, the government will not be able to meet all of its financial obligations. Economists warn this could have a serious impact on the national and global economy. A divided Congress and the President have been negotiating for weeks, trying to reach a deal to avoid a national default. Both sides propose massive spending cuts, but there has been impasse over how high to raise the debt limit, and whether there should also be a corresponding revenue increase by raising taxes on the wealthy. As of today, there are few signs that a deal is near.

So what happens if our government cannot come up with a solution by August 2? Everyone is talking about dire economic consequences, but few are talking about specifics. Here are some potential consequences for student loan borrowers:
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U.S. Dept. of Justice Joins 11 States in Lawsuit Against For-Profit College Chain

| Current Events

I recently posted an article about investigations into the practices of for-profit schools. The U.S. Dept. of Education recently passed new regulations designed to protect students from some of the abusive practices of these schools. While all of this has been going on, the U.S. Department of Justice has joined 11 states in a lawsuit against Educational Management Corp., one of the largest for-profit college chains in the country.

The lawsuit alleges that the company, which receives up to 90% of its revenues from student loans, illegally paid school recruiters based on the number of students that they enrolled. The suit further claims that the company operates almost entirely to recruit students, often rewarding recruiters with lavish gifts and trips to exotic places, without devoting adequate resources to provide students with academic and vocational skills to help them find a career. Not surprisingly, student loan default rates at these types of schools are astonishingly high.

Read more about the suit here…

Why A Low-Paying Public-Interest Job Can Really Pay Off

| Income-Based Repayment Loan Forgiveness

For some people, money buys happiness. I don’t mean that in a judgmental way. I mean truly, for some people, the accumulation of wealth is the key to their satisfaction in life. These particular individuals will try to attain the highest-paying jobs in business, law, or medicine to pay down their student loans (if they have any) as quickly as possible so that they can buy that nice house, get that nice car, and live the dream. If that’s you, and that model works for you, that’s great. Go for it.

For many others, however, life is a little more complicated. We all want to be financially secure, but many of us want to be doing work that not only brings us some level of challenge and excitement and happiness, but also makes some sort of positive difference in the world. Unfortunately, this occupational idealism can be at odds with the realities of market forces and the American higher education system. In other words, a good education here is astronomically expensive, and many jobs that serve the public interest just don’t pay well.

The traditional ways of dealing with this reality was either sacrificing your ideals and “selling out” in order to get that high-paying job that you hate so you can pay down those loans and switch careers later, or alternatively, being the idealistic martyr by obtaining your dream job in government or at a non-profit, but living in a cardboard box with Ramen for dinner every night so you can pay your monthly student loan bills. Well, it really doesn’t have to be that way.

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U.S. Senators Dick Durban, Sheldon Whitehouse, and Al Franken Introduce Legislation to Make Private Student Loans Dischargeable in Bankruptcy

| Policy & Reform

If you’ve read my previous posts about bankruptcy and private student loans, you’ll remember that one of the most significant problems with private student loans is that with rare exception, they cannot be discharged in bankruptcy. While many other types of debt (such as credit card debt) can be eliminated through bankruptcy if you are ultimately unable to pay, you will probably still be obligated to pay back your private student loans even if you successfully declare bankruptcy. These loans can thus haunt student borrowers for their entire lives (or even beyond, but that’s another story).

This wasn’t always the case. Before 2005, it was easier for student loan borrowers to include private student loans in bankruptcy discharges. Bankruptcy reform legislation, however, passed by Congress in 2005 and signed by President George W. Bush, drastically changed bankruptcy law’s treatment of private student loans. Suddenly, student loans became one of the most secure forms of debt for commercial lenders. U.S. Senators Dick Durban (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) have recently introduced legislation to restore bankruptcy protections for private student loan borrowers.

The bill is supported by other members of Congress as well as over 35 groups and organizations including the American Council on Education and the National Consumer Law Center. But given today’s political climate and our divided government, does this bill have any chance of passing? Read more here:http://durbin.senate.gov/public/index.cfm/pressreleases?ID=f7c84e6c-f2ac-4ee5-b466-f461b0f0de8a

10 Ways Student Loan Lenders and Collections Agencies Violate the Law

| Articles

When student borrowers fail to pay their student loan bills for any reason, lenders will try to get them to pay. The longer the borrower doesn’t pay, the harder the lender will try. Sometimes, the lender will hire a collections agency to pursue a student borrower who is in delinquency or default, and often these agencies will use aggressive, intimidating, deceptive, or irritating tactics.

The federal Fair Debt Collection Practices Act (“FDCPA”) and many state consumer rights laws provide substantial protection to consumers who are the subject of debt collection actions, including student loan borrowers. Unfortunately, collections agencies routinely violate the FDCPA because many student loan borrowers are unaware of the laws that protect them. Here are some common ways that they violate the FDCPA:

  • Calling you at unreasonable hours (i.e., in the middle of the night)
  • Calling you at work after you’ve told them not to
  • Threatening to take criminal action against you (i.e., arresting you)
  • Contacting you if they know you are represented by an attorney
  • Engaging in obscene or abusive conduct (i.e., calling you names, using profanity)
  • Repeatedly or continuously calling you with the intent to annoy, abuse, or harass you
  • Making false, deceptive, or misleading representations
  • Misrepresenting your rights with respect to federal student loans
  • Contacting family members, friends, or co-workers about your debt
  • Using deceptive means to collect information about a consumer

Borrowers who have been the subject of FDCPA violations can bring suit against the collections agency in federal court and collect damages. Often, these suits will settle before trial. If you are being aggressively pursued by a collections agency, you should keep careful, detailed records of all communications.

The Problem With Private Student Loans

| Private Student Loans

If you’ve been following this blog, you’ve probably seen at least some relatively good news about federal student loans. You can consolidate. You can get a payment plan that caps your payments at a percentage of your income. You can get some of your loans forgiven or cancelled if you work in certain professions. You can postpone your payments if you become unemployed or have difficulty paying your bills.

Unfortunately, private student loans are a whole different ballgame.

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New Regulations Protect Student Borrowers from For-Profit Colleges

| Policy & Reform

The U.S. Department of Education released new regulations last week that increase federal oversight of for-profit colleges (e.g., University of Phoenix, DeVry University, ITT Tech) and seek to protect student loan borrowers. This follows increasing scrutiny from lawmakers about the practices of for-profit colleges.

For-profit colleges spent about $8 million in federal lobbying last year, and they fought hard to stop these regulations. The regulations, in part, provide that for-profit colleges must pass a three-part test in order to be eligible to receive federal student loans and grants. Student debt advocates applauded these regulations, but many think they do not go nearly far enough to protect student borrowers. What do you think?

Read more here: http://www.politico.com/news/stories/0611/56077.html

Deferments and Forbearance

| Articles

If you’ve got student loans, chances are at some point during the repayment period you’re going to have difficulty making your payments. Given today’s still-sluggish economy, you may have trouble making your payments shortly after you graduate from college or grad school. Don’t panic– you may have options. The worst thing you can do is do nothing. If you don’t make your payments, your loans can become delinquent or even defaulted. That has serious consequences (which I’ll be discussing in a subsequent post).

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Got a Federal Perkins Loan? It’s Special.

| Cosigners

Different Federal student loans have different rights. The Perkins loan is an under-understood (and under-appreciated) federal loan that has a lot more rights and benefits than people might realize.

  • It has a lower interest rate, generally at about 5%
  • You don’t need a high credit score to get one
  • You don’t need a co-signer to get one
  • The government pays your interest while you’re in school
  • It is serviced by your school, meaning you don’t have to deal with the large bureaucracy at the U.S. Department of Education
  • It has a longer grace period (the “free” period after graduation) at nine months. That’s three months longer than Stafford loans, and Grad PLUS loans don’t even have a grace period.
  • You can cancel the loan if you work in certain professions. This is, arguably, the biggest benefit of Perkins loans. For those with eligible occupations—for example, certain types of teachers, certain types of medical professionals, and certain types of lawyers—you can get your Perkins loan completed cancelled. Cancelled— as in, you don’t have to repay it.

If you have a Perkins loan, that’s great news. It is one of the best student loans you can have. Keep in mind that if you areconsidering consolidating your federal student loans and you want to include the Perkins loan, you will lose the post-graduation benefits of the Perkins loan–namely the extended grace period, the lower interest rate, and the cancellation rights. Make sure you know whether or not it makes sense to include your Perkins loan in the consolidation.

Massachusetts Attorney General Investigates For-Profit Colleges

| Current Events

For-profit colleges have been coming under increasing scrutiny over the past couple of years. These schools have been accused of enticing students through misleading recruitment tactics, saddling them with enormous amounts of student loans, and then sending them off into the world with a degree that is near-worthless. Student loan default rates at for-profit colleges are astonishingly high, yet these institutions earn 90% or more of their revenue from federal and private student loans. Now, state attorney generals are investigating. Take a look at this Boston Globe article about what Massachusetts Attorney General Martha Coakley is doing about for-profit colleges:

http://www.boston.com/news/local/massachusetts/articles/2011/05/12/