There’s been a lot of uncertainty since the election regarding what the Trump administration and the Republican-controlled Congress may have in mind for student loan borrowers. During the past few weeks, I’ve been carefully watching public statements, investigating proposed appointments, and speaking with other advocates and experts. While everything at this point is still speculation, I think we’re beginning to see some clues as to where student loan reform may be going in the next few years, and who may be most at risk from potential negative consequences.Read More
The ability to refinance student loans is a big topic right now. Currently, there are no options to refinance federal student loans at lower interest rates while remaining in the federal student aid system (which I believe is problematic). There are an increasing number of private student loan refinancing options available, but these programs are generally geared towards high-income borrowers and carry their own set of risks and concerns.
SoFi, one of the major new private student loan refinancing companies, recently announced a new refinancing program involving mortgages. Specifically, SoFi has partnered with Fannie Mae to offer a mortgage refinancing program that can also be used to refinance student loan debt. In other words, borrowers who own a home could potentially take out a new mortgage at a lower interest rate to pay off their current mortgage and their student loan debt, too.
This student loan-mortgage combo refinancing package has some clear benefits. First of all, because a mortgage is a “secured” debt (meaning the debt is backed by an asset – in this case, a home), there is less risk to the lender, and so they are willing to offer a lower interest rate. Furthermore, mortgage interest rates are at historic lows at the moment. So homeowners can take advantage of the current interest rate environment to lower their rates on both their mortgage debt and their student loan debt. Depending on the borrower, this could lead to substantial savings.
However, this type of refinancing product also carries some risk. First of all, if borrowers are refinancing federal student loans into any type of private student loan, they may forever lose out on the unique consumer protections offered by the federal student loan system such as income-driven repayment, profession-based loan forgiveness, and discharges upon death or disability. Even more problematic, however, is the fact that with this specific type of refinancing product, borrowers would be turning an “unsecured” debt (a student loan not backed by any asset) into a “secured” debt (a mortgage backed by the borrower’s home). While defaulting on federal and private student loans is no picnic, defaulting on a mortgage means the mortgage lender can foreclose on the home – meaning force a sale. Is the interest rate reduction worth that risk?
There’s no right or wrong answer here, but I expect these types of refinancing programs to grow in popularity as long as the housing market remains strong. Borrowers who may be in a position to refinance their student loans through these programs should fully understand the potential risks and rewards before entering into any contract.
It’s been two weeks since the election, and there’s still much uncertainty about what the consequences of the election will be for student loan borrowers. While Hillary Clinton had mapped out a series of student loan reform proposals, Donald Trump has been far less specific about how he plans to deal with the $1.4 trillion in outstanding student debt.
In this time of uncertainty, and in keeping with the upcoming Thanksgiving holiday, I think it’s a good time to take stock of what we have and be grateful. If you follow this blog, you know that I frequently write about problems and deficiencies with the the student loan system. And for good reason – student loans are a mess, with inefficient servicing, damaging debt collection, and the potential for life-altering negative consequences for borrowers. There’s a lot to be angry about, and a lot that should change.
But, there are also good elements of the student loan system – programs and laws that keep people in good standing, allow them to repay their loans fairly, and protect them from abuses. As we press forward into this period of change and uncertainty, we may have to do some hard work to preserve what we have.Read More
It’s the political upset of the century, and this election is going to be studied by analysts and political scientists for years. But the reality is clear: Donald Trump has been elected the next President of the United States, and both houses of Congress will remain firmly in Republican control for the next two (and likely four) years. This is starkly different than what was expected by the political class just 48 hours ago – a Hillary Clinton win, with the Senate likely flipping to Democratic control.
A lot is being written right now about this election, and what it might mean for the country. I have seen very little, however, on what the election might mean for student loan borrowers. I’ve been quite clear that this election was going to be hugely consequential for student loan borrowers, regardless of who won. This is certainly still true today. And now we have to start thinking about what may be next for people with student loans.
Below are my candid thoughts on what I think student loan borrowers may be looking at over the next four years. I should be clear – while I believe my assessments below are consistent with the rhetoric and with the past actions of our next executive and legislative leaders, absolutely nothing is concrete at this time. There is a lot we just don’t know – and can’t know – at this early juncture. With that caveat, read on. Read More
As you may recall, thousands of borrowers began petitioning the federal government to forgive their federal student loans following the collapse of the for-profit college chain, Corinthian Colleges. Students argued that they should not be held responsible for student loans issued by a predatory company that took advantage of people and actively misled them. The students requested student loan relief and forgiveness under a little-known contractual and regulatory clause called “Defense to Repayment.” Since then, ITT Technical Institute has also collapsed, and many ITT graduates are requesting similar forms of relief.
The Dept. of Education had no formalized procedure for addressing Defense to Repayment, and so it began a long bureaucratic process to implement new rules and standards so that officials can determine who may be entitled to relief. After months of work, the Dept. of Education finally issued its new rules. Here are the highlights:Read More
Income-Driven Repayment (IDR) plans are a true lifeboat for millions of federal student loan borrowers struggling to repay their student loans. The programs provide uniquely-tailored monthly payments for borrowers based on income and family size, with a loan forgiveness safety net at the conclusion of the repayment term (20 or 25 years, depending on the specific plan). For many student loan borrowers, an IDR plan is the only thing standing between them and default.
The problem, though, is that the IDR system is a mess. For one thing, we have a confusing menu of individual IDR plans – there’s Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). Each plan has its own formula, unique eligibility criteria, and strange programmatic quirks. Figuring out what plan is right for you – and whether you should switch – can be a daunting task.
The complexities of IDR programs don’t make the struggling student loan servicing system any better, either. The CFPB recently released a report slamming student loan servicers for IDR-related processing delays and mistakes. Borrowers are frequently getting bumped off of IDR plans through no fault of their own, leading to serious negative consequences.
I think the current system is just not sustainable on a long term basis, even as more borrowers rely on these IDR programs to stay afloat. Things must change. Well, I think we’re starting to see the beginnings of reform.Read More
The Consumer Financial Protection Bureau (CFPB) has released a scathing new report on the student loan servicing system, with a particular focus on borrowers having difficulty accessing income-driven repayment plan programs like Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
Based on complaints submitted by consumers, the CFPB is confirming what many of us already know: that student loan servicing problems impede the ability of student loan borrowers to access programs to repay their loans, and widespread bureaucratic delays and errors lead to negative consequences for people. The CFPB’s report echoes my recent article highlighting the widespread problems with one of the biggest federal student loan servicers, FedLoan Servicing/PHEAA.
Here are some of the highlights from the report: Read More
The presidential party conventions are over, and what seems like the “election that never ends” will actually be over in less than 100 days.
A lot is being said about this election – that it’s the most important in a generation; that it could fundamentally change the United States and its place in the world; that our core national values are at stake. All of this may be true, and there’s plenty of analysis out there about how big and important it is.
But as a student loan attorney, I can tell you without hesitation that this presidential election is going to have a real, tangible impact on millions of student loan borrowers. It’s going to have significant, lasting consequences. What these impacts and consequences look like, however, will depend primarily on who wins this November. If you have student loans, you should be paying attention. Here’s why:Read More
There’s been a lot going on in the world of student loans during the past couple of weeks. Here’s a summary:
- This week, the Massachusetts State Senate passed a bill limiting the use of credit checks in hiring. This could provide some much-needed relief to consumers who have a negative credit history (such as a prior student loan default), which can cause ongoing problems in securing employment and housing. The bill now goes to the House.
- The Massachusetts State Senate also passed a landmark bill providing substantial new protections from debt collectors. This has the potential to be a game-changer here in terms of student loan collections, especially for private student loans. The bill will be sent to the House, where we hope it will pass.
- The U.S. Justice Department has launched a probe into whether Bridegepoint Education, the owner of Ashford University and the University of the Rockies, is violating a law that prohibits for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding. This is just the latest for-profit college chain to come under legal scrutiny.
- Non-profit and for-profit colleges are having a bit of a panic attack as the U.S. Dept. of Education moves forward with new rules allowing for student loan forgiveness for borrowers whose schools engaged in fraud and misrepresentations. The rules still have to be finalized and will not be implemented until sometime in 2017.
It’s rarely a slow news day in student loan law. Expect more robust articles on these stories as they develop.
I’m just going to come out and say it. FedLoan Servicing is literally the worst federal student loan servicer.
In many ways, all of the major student loan servicing companies have their problems, and it’s no wonder that the student loan servicing system as a whole has been repeatedly characterized as a dismal failure. But there is no servicer that is as consistently and embarrassingly awful as FedLoan Servicing.
The U.S. Dept. of Education’s major contracted loan servicing companies are the face of the federal student loan system. Servicers are the entities that borrowers must interact with on a regular basis. The servicing companies must be able to perform many critical operations for student loan borrowers – like processing payments, handling consolidation applications, approving people for repayment plans and properly calculating their monthly payments, and reviewing requests for emergency deferments and forbearances. Loan servicers are required to perform these operations under their contracts with the U.S. Dept. of Education. And borrowers have no choice but to work with their designated servicer – they do not have the ability to switch to a different student loan servicing company if they are unhappy.
Having worked with hundreds of student loan borrowers over the course of the past several years, I can say without any hesitation, without any reservation, that FedLoan Servicing (which is an arm of the Pennsylvania Higher Education Assistance Association, or PHEAA) is by far the worst of all of them. Based on a review of my docket just for the year 2016 thus far, a full 64% of my clients who have loans with FedLoan Servicing have experienced at least one serious problem during the past six months that was entirely caused by FedLoan Servicing. That’s nearly two out of three borrowers.
This is unacceptable.
FedLoan Servicing’s failures are as broad in type as they are deep in volume, and they span nearly every fundamental task that the agency is supposed to be performing. Here are some specific examples of FedLoan Servicing’s incompetence that I repeatedly encounter in my practice:Read More