Boston Student Loan Lawyer

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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The following is a guest post by Brendon McQueen, Founder and CEO of Binksty.com, a new site offering web-based student loan management services. Check it out.

I’d like to introduce Binksty.com to our users, our followers, the press, investors, financial aid administrators, counselors, parents, students and graduates along with anyone else with any skin in the student loan game. Binksty is a place to organize all of your student loans and we’re here to execute on that vision with the utmost fortitude. In other words, we’re here to solve a personal problem, which is often times the best way to solve the larger problem.

With default rates at a 12-year high (8.8%) and 3.7 million people entering loan repayment annually, the number of people affected by educational debt is not insignificant. This is not to mention that student loans have eclipsed credit card debt in the US, well on track to reaching $1 trillion dollars within our current calendar year. What’s more… Peter Thiel has called student loans the next bubble and most people don’t know that they are non-dischargeable when it comes to claiming bankruptcy.

I graduated from Columbia University with 12 loans and over $100k in debt so it’s no secret that I had a personal stake in finding a solution. This mission was hinged on seeing that a lot of other people were experiencing issues with their own loans. Along with a number of friends, family, acquaintances, and advisors, the decision was made to explore the concept of providing a comprehensive solution to the ongoing challenges people face when dealing with their educational debt.

Fast forward to April of this year. People would write us literally pleading for help with their student loans. One person signed up and wrote, “After graduation, it was difficult to find all of the places where my loan information was listed. I accumulated degrees from a number of places (undergraduate BS and Masters degree) so it wasn’t even like I could get a reliable picture from any one school’s financial aid office. It’s also hard to figure out when payments are due, get them out the door, and if I’m trying to pay back more than I owe for a particular month, it’s tough to make sure it goes to paying down my principal balance. I’d love to have a chance to see my loans all in one place.” When we got this email we knew we were onto something so we came up with what we thought we needed for our own loans; aggregation, payments, forbearance assistance; advice, etc. – and are now implementing these tools on top of our current private beta platform.

We look forward to welcoming more people into the Beta as we fix bugs and improve our overall capabilities. More importantly, however, we’re excited to be solving a problem that affects so many people in a space that’s growing exponentially. Feel free to drop us a line any time at contact@binksty.com. Your suggestions and thoughts at this early junction might even shape where we go into the future.

Here’s our private beta launch coverage in TechCrunch

-Brendon McQueen (Founder/CEO), Binksty.com

PS – If you were wondering where the name comes from… Binksty is a financial comfort tool, sorta like a Binky 🙂

In recognition of Veteran’s Day this week, here is an overview of federal student loan benefits for military service members and vets. Please keep in mind that the benefits outlined below apply only to federal student loans. Whether private student loans have similar benefits will depend on the individual lender.

Military Service Deferment and Forbearance. If you remember, deferments and forbearance allow student loan borrowers to postpone payments on their student loans under certain circumstances. For federal student loans, there is a special deferment option for service members on active duty during a war or military operation. The borrower may request this deferment directly, or can have a representative do it on their behalf. Unlike most other deferments, there is no time limit on active military deferments, as long as the borrower is on active duty. In addition, there is a “post-active duty” forbearance available for borrowers returning from active duty if they were enrolled in school at the time that they were called. These borrowers may continue to postpone their payments for up to 13 months.

Income-Based Repayment (“IBR”). Military service members and civilian employees, regardless of their duty status, should be eligible for IBR, which caps payments at a percentage of income, regardless of the total amount of federal student loan debt. Read more on IBR.

Loan Forgiveness and Cancellation. The federal government offers loan forgiveness to borrowers of Direct federal loans on standard or income-sensitive repayment plans (including IBR) after 10 years of payments, if they work in public service. Since the military is part of the U.S. government, any employee (a service member regardless of duty status, and any civilian employee of the armed forces) should be eligible for this loan forgiveness program. Read more on public service loan forgiveness. In addition, Federal Perkins loans can be canceled following certain types of military service; read more on Perkins loans.

Post 9/11 GI Bill. This bill provides for financial support to returning active duty military service personnel who go back to school. In order to qualify, students must be pursuing an approved program of education as defined in the law. Monetary benefits can include tuition (although it cannot exceed the maximum tuition for in-state undergraduate students in the state where the student is enrolled), as well as room/board, books, and supplies. In certain situations, these benefits may be transferred to the service member’s spouse and one or more children. Benefits vary depending on the length of the service member’s time in active duty, with a minimum of 90 days required for partial benefits.

Other Federal Student Loan Relief Options. There are various other benefits afforded to active military service members involved in a war or military operation. These include:

• Extension of loan grace periods for up to three years
• Extension of deferment and forbearance time limits (for non-military deferments)
• Caps on interest accrual for Direct federal student loans while on active duty
• Cessation of collections activities for defaulted federal student loans

There is a little-known discharge (cancellation) option for federal student loan borrowers who are victims, or relatives of victims, of the September 11th terrorist attacks. This is a remarkable discharge in that it is the only discharge option available to borrowers because of a single historical event. (There is a natural disaster-based forbearance option for federal student loan borrowers, but that just postpones your payments, as opposed to canceling the entire loan balance.) Moreover, very few people know about this discharge option.

Here’s how it works:

You must be either a direct victim or first responder of the September 11th terrorist attacks, or be a spouse or parent of a victim. Eligible loans include Perkins loans, FFEL loans, and Direct Loans, including Parent PLUS loans. The loan balance must have been owed on September 11, 2001 (meaning the discharge won’t apply to, for instance, a relative of a victim who obtained a federal loan sometime in 2002).

If you know of anyone who might be eligible, spread the word, as this is probably the least-known discharge option for federal student loan borrowers.

Two websites recently ranked the best cities for recent grads. This is, of course, an informal and unscientific ranking, but important factors include the city’s young adult population, the number of entry-level or low-experience jobs that were available, and the average rent of a one-bedroom apartment. See what cities are on the list here:http://www.huffingtonpost.com/2011/09/12/the-10-best-cities-for-re_n_958178.html (and yes, Boston is on there).

We saw it with housing just a few years ago. Young, first-time, would-be homeowners were told how easy it would be to get an affordable mortgage. With aggressive marketing campaigns by mortgage companies that ramped up expectations of home ownership (without any discussion of potential risk), young people were persuaded to buy that house and get that mortgage, even though down the road they may not be able to pay. These mortgage companies then sold the high-risk mortgages to other companies, so everyone profited… until, of course, the homeowners reach a point where they no longer could pay (whether it was because of an adjustable interest rate that spiked, rising unemployment, or unexpected maintenance and expenses), and the whole bubble collapsed.

I’ve been saying for years that student loans are next. I don’t want to be right (I’ve got my own student loans that I’m dealing with), but now Moody’s, one of the three major credit ratings agencies, is acknowledging that we might be headed in that direction.

For the past twenty years, the cost of American higher education (both private and public) has been skyrocketing. Federal financial aid has not been keeping pace with these astronomical costs, so increasingly students are turning to expensive and risky private student loans to finance their educations. High school students and parents are told that this is an “investment;” that taking out tens of thousands of dollars in student loans will lead to a high-paying job, and it can all be paid off. But with a stagnant, sluggish economy and high-paying entry-level positions drying up, students are finding themselves with a fancy degree, lots of student debt, and no viable way of paying it all off. Youth unemployment is at a jaw-dropping 15%, and with recent deficit reduction legislation passed by Congress and signed by the President, borrowing will be even more expensive for students due to the elimination of subsidized federal loan programs.

Are student loans going to be the next bubble to burst? Read more here: http://www.huffingtonpost.com/2011/08/09/moodys-student-loans-bubble-burst

So you might know at this point that direct loan consolidation is a great option for federal student loan borrowers. It can simplify the repayment process if you have many federal loans, can lead to lower interest rates and lower payments, and may be a tool for getting out of default and repairing your credit. Loan consolidation is great…

…In theory, at least. The problem is that the U.S. Department of Education is a massive bureaucracy. The loan consolidation application is a confusing mess. There are many different types of federal student loans; some can be consolidated, some cannot be consolidated, and some can only be consolidated under certain circumstances. Customer service representatives have been known to be unhelpful and rude, and in some situations, they have been providing misinformation. Department employees also make frequent mistakes. For example, they sometimes leave certain loans out of the consolidation that should have been included (this actually happened to me), which means you have to be vigilant about tracking which loans are included and which loans, if any, were accidentally left out; you’ll then have to fill out another application to get those forgotten loans added back to the consolidation loan later. Mistakes like these can cost you, since you still have to make your payments while the loans are being consolidated– even if the Department messes up.

The loan consolidation process is tedious and confusing at best, and at its worst it can be so defective that it actually impacts you financially. This is why it can be very beneficial to seek out a professional who is familiar with the consolidation process and the Department’s bureaucracy. To read more about defective loan consolidation (and some rather nightmarish stories), click here: http://www.huffingtonpost.com/.