Boston Student Loan Lawyer

As if the entire student loan industry wasn’t bad enough, there are new players trying to enter the field to take advantage of student borrowers. A few weeks ago I blogged about student loan debt-settlement companies. Here’s another one for you: student account debit card companies.

Increasingly, colleges and universities are outsourcing the management of student accounts and disbursed student loans to private companies. Instead of placing your loan disbursements into your student account, the funds are disbursed into accounts held by a specialized debit card company. The company then charges exorbitant fees to students- debit card fees, account maintenance fees, balance fees, etc, netting tens of millions of dollars in profits each year. What’s worse is that at many schools, colleges co-brand their own school’s name with that of the student account company, giving students the impression that the company is fair and legitimate, or even part of the college itself. This is remarkably similar to stories from a few years ago where college financial aid offices got a little too cozy with private student loan companies (and guess who paid the price then, too?).

It seems everyone has something to gain by taking advantage of young people who are just trying to get an education and get ahead in life. To read more about student account debit card companies, check out this story and this story.

Student loans are a special type of consumer debt. They are unlike credit cards, medical bills, auto loans, or home mortgages.

Almost anyone can get student loans when you go to school, and sometimes you don’t even need to go through a credit check. Once you get a student loan, it can follow you forever. Federal loans in particular have no statute of limitations (meaning the debts will never expire), and both private and federal loans can almost never be discharged in bankruptcy.

This wasn’t always the case. 2005 legislation passed by Congress and signed by President Bush amended the bankruptcy code to restrict bankruptcy discharges of student loan debt. There is currently pending legislation to reintroduce bankruptcy protections for some private student loans, but for now, it doesn’t look like the bill is going anywhere. Thus it remains exceedingly difficult to discharge any student loan in bankruptcy.

Difficult, but not impossible, as a recent case makes clear. To discharge student loans through bankruptcy, a borrower must prove what’s called an “undue hardship” or “undue burden.” This legal test is, despite the mushiness of the term, a tough standard to meet, as you essentially have to show that exceptional circumstances will prevent you from ever paying back your debt. One recent former law student (who did not graduate) with over $300,000 in student loan debt passed this test. She is 63 years old, diagnosed with Asperger’s syndrome and is unable to get a job because of her condition and inability to complete law school. A bankruptcy judge discharged her student loan debt, writing “[T]o expect Ms. Todd to ever break the grip of Autism and meaningfully channel her energies toward tasks that are not in some way either dictated, or circumscribed, by the demands of her disorder would be to dream the impossible dream.”

This case is a great example of the fact that it is not totally impossible to discharge student loan debt in bankruptcy. It is also, however, a stark reminder of how exceptional your circumstances must be to have a shot at this. To read more about this story, click here or here.

Things are all sorts of crazy right now when it comes to the Dept. of Education’s federal loan servicing system. Check out last week’s article for a good summary of the chaos. But now, there might actually be a quirk that is working in favor of student loan borrowers.

First, some background. Let’s talk grace periods. A grace period is the chunk of time after you graduate where no payments are due. It’s a free pass, so to speak, built into student loan repayment that allows you time to find a job and get settled before you have to start paying up. Different loans have different grace periods. Federal Stafford loans, for instance, have a 6-month grace period, while Federal Perkins loans have a 9-month grace period. Even most private student loans have grace periods.

Not all student loans have a grace period, however. Federal Grad PLUS loans, one of the most common and easily-obtainable federal student loans available for students in graduate school, traditionally have had no grace periods. That means that you’re going to get billed the month after you graduate. In an economy that’s still recovering from the Great Recession, this can take recent grads by surprise, and many are unprepared to cough up a hefty payment that quickly.

Well apparently, this may not quite be the case anymore, at least not for everyone. I’ve been getting several reports that for some graduating graduate school students whose loans are serviced by www.MyEdAccount.com, there is now a 6-month grace period for Grad PLUS loans. I don’t know where this came from. What I do know is that it is not universal; that is, some people whose loans are serviced by www.MyEdAccount.com still have no grace period for Grad PLUS loans. I don’t know what is going on with other federal loan servicers.

People, this is a little weird, and I’m skeptical. Regardless of who your federal loan servicer is, if you have Grad PLUS loans and you are graduating, I would just monitor your account closely and regularly verify whether or not a payment is due. While I certainly welcome grace periods for Grad PLUS loans (why on earth is there no grace period for these loans, anyway?), my impression (and my concern) is that this new so-called grace period is the result of the continuing bureaucratic mess at the Dept. of Education, and not the result of a well-intentioned policy change.

I’ve been blogging about problems with the new federal student loan servicing system for months. Consolidations are being messed up. Borrowers are being kicked off of IBR. Students who are still in school are being told that they have entered repayment. Public Service borrowers are seeing their loans change hands yet again.

Well, finally the news media is reporting on these problems. Obviously negative publicity isn’t a complete solution here, but it is absolutely key in bringing these issues to light and pressuring the Dept. of Education to clean up its act. Thank you to everyone who has contributed their stories to me, to the National Consumer Law Center, or to the news media. Here are some links to news articles on these issues. Please share!

ProRepublica

Inside Higher Ed

Chronicle of Higher Education (and yours truly is quoted in this one!)

You may have heard of debt settlement firms before. These are often dubious for-profit companies that promise to eliminate all your debts and wipe your credit report clean — all for a cheap fee. Sound too good to be true? Well, many times it is, and debtors who use these firms often just replace one type of debt with another type of debt, and their headaches only continue. Check out this article, which provides some good reasons why debt settlement firms can be problematic, and read this one about states taking legal action against some debt settlement firms for deceptive practices.

Given that total student loan debt in America has reached $1 trillion and surpassed credit card debt for the first time in history, it’s no surprise that these shady companies are trying their luck with student loan debtors.

Be forewarned: these firms are trouble.

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The following is a guest post by Carlin Sack from Binksty.com. Binksty.com provides an integrated online student loan management program to help student loan borrowers deal with their debt.

College students vie for it. Education experts advocate for it. Even President Barack Obama endorsed a college “report card.” The idea of a uniform report card used to assess colleges is supported by many and the hype over it has only increased since Obama’s January speech at University of Michigan regarding the affordability of a college education.

Higher education activists call for a report mandated by the federal government that gives specific items of “consumer information” for every college. Others say that this information already exists elsewhere, so there is no reason for interference by the federal government.

But any current student who is choosing between colleges and is looking for accessible information about actual costs of receiving a degree would vouch that it is not easy to find.

Students just really want to know the answer to one question: “Will this debt be worth it?”

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The new loan servicer for federal Direct loans contracted with the Department of Education is a complete and utter disaster (yeah… I said it). They have been causing major problems for borrowers on Income-Based Repayment, and they have also been messing up Direct Loan Consolidations. They cannot seem to do anything right, and I’m really not exaggerating here.

Well, they are causing yet another new problem, and this one is particularly important for borrowers who are still in school. Apparently, the new servicer is reporting that some federal loans enter repayment this March or April, even when the borrower does not graduate until May or June and has an in-school deferment until that point. When contacted, the customer service representatives are informing borrowers not to worry, it is just an error. But I’ve also been getting stories from other borrowers that these loans may actually enter repayment prior to graduation. For borrowers who have already set up automatic debit from their bank accounts (this is particularly true for borrowers who had been in repayment before returning to school full-time), the Dept. of Education might actually withdraw payments automatically from your bank account.

This is a complete nightmare. Borrowers who are presently in school and technically in deferment might want to consider canceling automatic debit if it is already set up, at least until you graduate. In-school borrowers should also check myedaccount.com and www.nslds.ed.gov to determine the status of all federal loans. Watch your mail for any bills that come in. If you’re billed while in deferment, you’ll want to call the loan servicer and figure out what to do (and their wait times can be obscenely long, because hey, why have effective customer service when you can’t do anything else right anyway?).

If you haven’t heard by now, the Dept. of Education recently contracted with a new federal loan servicer and, well, things haven’t been going very smoothly. There have been a host of problems, particularly for borrowers who are onIncome Based Repayment (IBR).

Well, the servicer is now also causing problems for borrowers who are consolidating their federal student loans. Consolidation is a useful tool for borrowers who are seeking to optimize repayment. It can also help bring you out of federal default under certain circumstances, and can make you eligible for Public Service Loan Forgiveness (if you meet the other eligibility criteria as well).

When you consolidate, you must select a repayment plan. Many borrowers will choose IBR because it often results in the lowest monthly payment and the possibility of loan forgiveness. However, for newly consolidated loans, the new federal loan servicer has been placing borrowers on the Standard repayment plan (sometimes with very high payments), regardless of the repayment plan that the borrower actually selects.

I called the new federal loan servicer this week to get an explanation. You’ll love this. Apparently, they are placing borrowers on the Standard plan because they (now) require that repayment plan selection forms and proof of income be sent directly to the federal loan servicer’s address in Texas. However, when you consolidate, you are required to send all those forms to the Consolidation Department’s address, which is in Kentucky. I told the federal loan servicer representatives that in fact this new requirement and change of address has not been communicated to anyone, since the Consolidation Department still instructs consolidating borrowers to send all forms, including repayment plan selection forms, to its Kentucky address. The servicer representatives told me I was flat wrong. Funny, since I just did several consolidation applications for clients over the past few days… I’m not wrong.

So, folks who are consolidating, please be aware of this new requirement. I figure since no one else is actually disseminating this information, I’ll go ahead and spread the word. Repayment plan selection forms for consolidating borrowers need to be sent to your federal loan servicer address, as well as the Consolidation department address, since apparently having two departments within the U.S. Dept. of Education actually communicate with each other is just way, way too much to ask.

With a trillion dollars in student loans out there, it’s no surprise that keeping track of all your loans can be a little daunting. This is especially true when you can’t tell what company owns your loan. Fall behind in payments, and you can go into delinquency or default, which may have serious consequences. In addition, sometimes student loan lenders or servicers make big mistakes, and so through no fault of your own, you may be reported as behind on your payments. This can impact your credit score and ability to get new credit, housing, or employment. Just look at the recent shenanigans with the new federal student loan servicer as an example of what happens when student loan servicers mess up.

So what can you do? Here are three simple ways of keeping tabs on your student loans.

1. The National Student Loan Data System (NSLDS). This is a federal database that shows fairly up-to-date information on all of your federal student loans. This includes Direct federal loans (loans lent directly by the U.S. Department of Education), and FFEL loans, also known as federally-gauranteed loans (for a description of the differences between these types of loans, check out my earlier post here.). This is a great way to tell which of your student loans are federal, and which are purely private. The database will also tell you the status of your federal student loans, i.e., whether they are in repayment, grace, deferment, or forbearance, and whether they are delinquent or defaulted. You can access the database here: www.nslds.ed.gov.
2. Get A Copy of Your Credit Report. Your credit report should list all of your student loans, the current status of those loans (as reported to the credit bureaus by the loan servicers), and your monthly payment. This is a great way to make sure that your credit report accurately reflects reality — for example, if you’ve never missed a payment, your credit report should reflect that. Everyone is entitled to one free credit report each year, which is available here:www.annualcreditreport.com. This is the only website authorized by the federal government to provide your free annual credit report. You can also pay a nominal monthly fee to one of the three credit bureaus (Equifax, Experian, or TransUnion) to get monthly credit report updates and alerts for any substantial changes to your credit report; I do this, and I have to say, the feeling of security is definitely worth the price. If you find out that you have inaccurate information on your credit report, there are ways to challenge the inaccuracies and get them removed.
3. Contact Your Loan Servicer. If you’ve checked NSLDS and your credit report and something still doesn’t seem quite right, you can always contact your loan servicer directly. They should be able to give you all the relevant information on your student loan (regardless of whether it is federal or private), including its current status and your payment history. If you can’t get the proper information from the first customer service representative that you speak to, don’t be shy about asking to speak with a supervisor.

One of the most frustrating things about student loans is that sometimes it seems as though there are a dozen different companies or entities involved in one, single loan. When you have multiple student loans, each with multiple companies involved in one way or another, figuring it all out can be a bit… tedious. Understanding the roles that different entities play in the student loan world might be helpful, so let me try to de-mystify things a bit.

Lender. The lender is the original entity that actually gave you the student loan. You borrowed from the lender, you signed a promissory note issued by the lender, and you have to repay the lender. For private loans, the original lender could be a private company (such as a bank), or it could be a quasi-public student loan agency that issues state-based student loans. For federal loans, the original lender could be the U.S. Department of Education (if you have Direct federal loans), or could be a private entity (such as a bank) is you have a FFEL federal loan, which is a federal student loan guaranteed by the federal government (as opposed to directly lent by the federal government… read below for more info on FFEL loans).

Guarantor. Up until 2010, many federal loans were issued via the FFEL program, where private commercial lenders (i.e., banks) issued federally-guaranteed loans. An act of Congress in 2010 eliminated the FFEL program, so now all federal loans are issued directly by the U.S. Department of Education’s Direct lending program. If you were in school prior to 2010, however, you may have FFEL loans. FFEL loans worked like this: a private entity lent you the money, and if you ever default on that loan, the loan is “guaranteed” (or “insured”) by a state agency or non-profit organization. The “guarantor” is that insurance agency. So, as an example: you may have been issued a FFEL federal student loan in 2009 by, let’s say, Sallie Mae. If you default on that loan, the guarantor essentially provides “insurance” to Sallie Mae, so Sallie Mae gets paid by the guarantor. You then owe the guarantor, not Sallie Mae. Guarantors are, in turn, insured by the federal government.

Confused yet?

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