Boston Student Loan Lawyer

Law Office of Adam S. Minsky

Four “Secrets” About Income Based Repayment

| Articles Income-Based Repayment Income-Driven Repayment Pay-As-You-Earn Student Loans 101

Income-driven repayment plans such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) offer millions of federal student loan borrowers the opportunity to have a uniquely tailored monthly payment based on their income and family size. The programs also offer forgiveness of any remaining loan balance at the end of their respective repayment terms (20 or 25 years, depending on the program). Although far from perfect, for many borrowers these programs are the only thing standing between them and default, as “regular” repayment plans based on the loan balance would be unaffordable.

Income-driven repayment plans can be complicated to navigate, however, and not everyone knows some of the features that can provide even more relief. Here’s a short list of the most glaringly lesser-known programmatic features of income-driven repayment:Read More

BREAKING: Expanded “Pay As You Earn” Program Details Released

| Articles Current Events Income-Based Repayment Income-Driven Repayment Loan Forgiveness Pay-As-You-Earn Policy & Reform

Last year, the President announced that he intended to expand access to the “Pay As You Earn” (PAYE) plan, an income-driven repayment plan that is significantly better than the widely-available Income-Based Repayment (IBR) plan, but is presently restricted to only the newest federal student loan borrowers. That means that most federal student loan borrowers currently in repayment cannot select the PAYE plan.

For months, the U.S. Dept. of Education has been engaged in what we call “negotiated rulemaking,” working with key stakeholders to flesh out the details of the expanded program and draft proposed regulations. Here are some key components of the program from the negotiating rulemaking committee:Read More

7 Signs of a Predatory “Student Loan Relief” Company

| Articles Current Events Income-Based Repayment Income-Driven Repayment Loan Forgiveness Pay-As-You-Earn

I was recently interviewed by MarketWatch about the rise in student loan “relief” and “assistance” companies that purport to help student borrowers manage their debts, but often turn out to be predatory.

The problem, as the article points out, is that the rapid increase in student debt burdens, combined with the dearth of resources to assist borrowers, has resulted in an explosion of various companies promising (sometimes falsely) to help student loan borrowers manage, or even eliminate, their debts.

Many of these operations have recently gotten into big trouble because of their predatory nature. State attorneys general have been filing suit against some of the companies that have been essentially functioning as high-priced student loan document processing mills, blindly performing routine tasks such as federal loan consolidation and repayment plan selection, without providing any relevant counseling or competent advice, and often messing up. Other companies, such as GL Advisor, have been cited for poor customer service and actively defrauding their clients and investors. Still other companies are simply scammers: shell corporations set up to take as much money from student loan borrowers as possible, while providing minimum (if any) real services.

All that said, there are also legitimate people out there providing real, valuable assistance to borrowers.

So how can you tell the difference between a student loan assistance firm that may be legitimate, and one that may be predatory? Here are a few things to look for:Read More

Never Ever Share Your Federal PIN for Student Loans

| Articles Income-Based Repayment Income-Driven Repayment

This post is a bit of a student loan “Public Service Announcement.”

The U.S. Dept. of Education issues student borrowers a federal PIN (personal identification number) that, when used in conjunction with your other personal data, can be used to complete financial aid forms, access your federal student loan data through the Department’s online database, and apply for federal student loan programs (such as loan consolidation and income-based repayment). It’s a very handy tool to manage your federal student loans online, and it also provides an added level of security so that even if someone knows your name, social security number, and other personal identifying information, they cannot access your student loan information.

As a rule, never give your federal PIN to anyone. Not to your boyfriend or girlfriend, not to your husband or wife, not to your parent, not to your best friend. Not even to your attorney. And certainly not to any third-party who asks for it. Here’s why.Read More

Why Parent PLUS Loans Are the WORST

| Default Income-Based Repayment Pay-As-You-Earn

When people talk to me about my student loan law practice, most will assume that my clients are all struggling 20-somethings with overwhelming loads of student loan debt. People are always surprised when I tell them that I actually have many clients who are parents struggling with the debts that they incurred to pay for their child’s education. It is natural and understandable that parents want to pay for their kids’ educations. But many do not realize the dangers of parent debt until it’s too late.

The most common type of parent loan is a Parent PLUS loan. A Parent PLUS loan is a federal loan taken on entirely by the parent; the student has no legal responsibility, only the parent. Over $10 billion in Parent PLUS loans are disbursed every year. And they are some of the worst student loans out there. Here’s why:

  • Parent PLUS loans have very high interest rates, the highest among any type of federal student loan. Right now, interest rates for Parent PLUS loans are 7.21%. However, it is common for loans disbursed in prior years to have interest rates in excess of 8%, and under current law, they may rise as high as 10.5% in the coming years. That’s $1,050 in interest per year for every $10,000 disbursement.
  • Parent PLUS loans incur origination fees, which can be over 4% of the disbursed loan balance. Combined with the high interest rate, this makes PLUS loans exceptionally expensive.
  • Parent PLUS loans are not eligible for income-driven repayment, such as Income-Based Repayment (IBR) or Pay-As-You-Earn (PAYE). This is particularly problematic for parents who take out large Parent PLUS loans and intend to retire in the relatively near future. That may no longer be possible with huge monthly loan bills. (Parent PLUS loans can be repaid under Income-Contingent Repayment (ICR), an older and less-favorable income-driven option, under certain circumstances, but this can still be tough for many parents).
  • Parent PLUS loans are federal student loans, which means they are subject to the draconian collection powers of the federal government if the loan goes into default. This includes wage garnishment, tax refund interception, and, if the parent is disabled or retired, the offset of Social Security benefits. There is no statute of limitations on the collection of this type of debt, meaning it will follow the parent to the grave.

So if you are a parent and you want to help pay for your child’s college education, it’s advisable to do this through a long-term savings plan. Relying on Parent PLUS loans may be a decision you live to regret.

The Six Most Common Student Loans, Ranked

| Default Income-Based Repayment Loan Forgiveness Private Student Loans

So, you’ve got a student loan. Don’t we all? One could argue that they are all pretty terrible, and you would not be totally wrong about that. However, in my opinion, some are better than others. If you are looking for some basic financial aid counseling, here is my own ranking of the most common student loans, least-worst to most-worst:

  1. Federal Perkins Loans. These are low-interest federal student loans available to both undergraduates and graduates who have significant financial need. The funds for Perkins loans are provided by the federal government to participating colleges and universities, and then leant by the schools to students directly. I like Perkins loans because they have low, fixed interest rates at 5% and relatively small loan balances. Interest accrual is deferred while you are enrolled in school, and they have fairly generous forgiveness and cancellation options if you work in the right profession. There are two major downsides, however: these loans are not eligible for Income-Based Repayment (IBR), and if you default on them, resolving the defaults can be quite costly, and might even involve litigation.
  2. Federal Subsidized Stafford Loans. These are next on my list and are probably the most common student loans out there. They are available to undergraduate, graduate, and professional students and have relatively low interest rates. The government waives interest accrual during school enrollment, which is a huge benefit.
  3. Federal Unsubsidized Stafford Loans. These loans are the Subsidized Stafford loan’s evil twin. Although they also tend to have relatively low interest rates and are widely available, they are typically disbursed in larger amounts, and the government does not waive interest during school enrollment or other deferment periods. This makes these loans significantly more costly for students than subsidized loans, given that thousands of dollars of interest can accrue by the time you graduate.
  4. Federal Graduate PLUS Loans. These loans are available only to graduate and professional students. They have much higher interest rates than most other federal loans and they can also have origination fees. Students can borrow up to the cost of attendance, but these loans are not subsidized, which means a huge amount of interest can accrue during school enrollment and other deferment periods. This can be quite costly.
  5. Federal Parent PLUS Loans. These are the worst federal student loans, in my opinion. These loans are only available to parents for the benefit of their child’s education. Like Graduate PLUS loans, these loans have very high interest rates, origination fees, high balance limits, and they are not subsidized. To make matters even worse, these loans are not eligible for Income-Based Repayment (IBR), which can cause a major hardship (although it may be possible to place these loans on a less-favorable income-driven plan in certain circumstances).
  6. Private Loans. If you follow my posts, this should come as no surprise to you. Private student loans typically have high interest rates, high origination fees, and few avenues for repayment flexibility or hardship relief. Private loans should be avoided at all costs, in my opinion.

Top 5 Myths About Income-Driven Repayment

| Income-Based Repayment Loan Forgiveness Pay-As-You-Earn

With the recent news about the Obama administration’s proposed expansion of the Pay-As-You-Earn repayment program for certain federal student loan borrowers, people have been talking a lot about income-driven repayment. The problem is that there are a lot of misconceptions about these repayment programs, and this can steer public discourse in the wrong direction. I’d like to try to dispel some of the most common myths I encounter.

  • Borrowers pay little or nothing on an income-driven plan. There are several income-driven repayment plans, each with their own eligibility criteria and formulas to calculate monthly payments. Two of the plans, Income-Based Repayment (IBR) and Pay-As-You-Earn (PAYE) have exemptions for people at or below 150% of the federal poverty limit. This makes sense, since if it’s a choice between putting food on the table and paying your student loans, we want you to put food on the table. For everyone else, 15% of discretionary income for IBR and 10% of discretionary income for PAYE is not an insignificant payment amount, particularly given the rising cost of food, fuel, and housing, as well as declining purchasing power. Under IBR, a borrower making $35,000 per year will pay about $230 per month. At $55,000 per year, the borrower will pay about $480 per month.
  • Everyone will get their loans forgiven. For all of the income-driven repayment plans, if you make payments for the full repayment term (25 years for IBR, 20 years for PAYE), any remaining balance will be forgiven at the end of the term. However, the fact is that the vast majority of people in these programs will repay their loans before the repayment term ends, and there will be no balance to forgive. Take the following example. A borrower who graduates with $33,000 in federal student loan debt (the average debt load for the Class of 2014) at a 4.8% interest rate, and has a starting salary of $35,000, will repay their loans in full under both the IBR and PAYE plans.
  • It’s easy. All you have to do is send in documentation of income every year, and your loan servicer will recalculate your payment. Piece of cake, right? Wrong. The federal student loan servicing system is plagued by administrative errors and inefficiency. Many of you recall that when I tried to re-certify my income to remain in income-driven repayment, I had tremendous difficulties. And I’m the expert when it comes to this stuff!
  • Borrowers get a free pass, and taxpayers foot the bill. Most borrowers will repay their student loan debts in full by the end of their income-driven repayment terms, so only a fraction of borrowers on income-driven plans will have any balance forgiven. Furthermore, because of how interest works, the vast majority of borrowers will wind up repaying significantly more than they originally borrowed, including those who get some of their balance forgiven at the end of their repayment term. On top of this, any forgiven balance could be treated as taxable income for the borrower, meaning the borrower would have to pay additional taxes. What all of this means is that under these plans, even with their forgiveness provisions, the government (and the taxpayer) still come out on top. It’s not even close. This is not a free pass for borrowers.
  • Students borrow more because of these plans. There is no actual data to back up this assumption. The fact is, with college tuition exploding during the past twenty years, education has simply become much more expensive. Students entering college and taking on student loan debt have very little counseling about their post-graduation repayment options, and most do not even know about income-driven repayment until they graduate. Data shows that these programs are significantly under-utilized, meaning that borrowers who could be eligible for IBR or PAYE are simply not enrolling because they do not know that they exist.

FAQ For the President’s Expansion of “Pay-As-You-Earn”

| Income-Based Repayment Loan Forgiveness Pay-As-You-Earn

Yesterday, President Obama signed an Executive Order expanding the “Pay-As-You-Earn” (PAYE) repayment plan option for federal student loan borrowers. PAYE is essentially a more-affordable version of the “Income-Based Repayment” (IBR) plan.

So what does this mean, exactly, and how will you be potentially impacted? These are some of the most common questions I’ve been getting:

What is IBR? In 2007, Congress and President Bush passed a law that created the Income-Based Repayment (IBR) program, which allows federal student loan borrowers to make payments on their federal student loans based on their income. The program caps monthly payments at 15% of a borrower’s discretionary income. After 25 years of payments under the IBR program, whatever balance remains is forgiven.

How is PAYE better than IBR? PAYE improves upon IBR by capping payments at 10% of a borrower’s discretionary income. To illustrate, a single borrower with $40,000 in eligible federal student loans with an income of $35,000 per year would have a monthly IBR payment of $220. Under PAYE, the monthly payment for the same borrower would be $145. Furthermore, under the PAYE program, a borrower’s remaining loan balance is forgiven after only 20 years, instead of 25 years under IBR.

So why not choose the PAYE plan now instead of IBR? When the PAYE program was created in 2012, the U.S. Dept. of Education limited the program’s eligibility to what it calls “new borrowers.” These are borrowers who had no outstanding federal student loan debt as of Oct. 1, 2007, and also took out a new federal student loan on or after Oct. 1, 2011. This locked out borrowers who had older loans.

And what does the President’s Executive Order do? The President’s Executive Order eliminates the “new borrower” eligibility restrictions on the PAYE program, meaning that borrower who took out loans prior to Oct 1., 2007, or did not take out a new federal loan after Oct. 1, 2011, will now be eligible.

Great! Where do I sign up? Not so fast. The program will not become effective until at least December 2015. The U.S. Dept. of Education has to issue new regulations governing the expanded PAYE program, and that is a long process.

Will this impact Public Service Loan Forgiveness? Public Service Loan Forgiveness (PSLF) is a separate federal loan forgiveness program whereby borrowers can get their remaining loan balance forgiven after 10 years of qualifying payments under the IBR or PAYE plans. Many borrowers were concerned after the President’s budget proposal offered a new “PAYE” plan that capped loan forgiveness at the 10-year point, and extended the repayment term of higher-debt borrowers to a 20-year term. The President’s Executive Order that he signed this week does not implement any of the proposed changes to loan forgiveness that were contained in his budget proposal, and the White House’s fact sheet on the Executive Order specifically mentions that “any remaining balance” under the expanded PAYE program is forgiven after 10 years of qualifying public service employment. Of course, additional changes to these programs could come in the future. But for now, this Executive Order does not impact the PSLF program.

Stay tuned as more information on this becomes available.

Auto-Debit: the Good, the Bad, and the Ugly

| Income-Based Repayment

Auto-debit can be a great way to stay on top of your student loan payments, especially when you are dealing with multiple lenders or servicers, each with their own separate monthly bills. You link your student loan accounts with your checking account, and the payments take care of themselves, automatically. Good deal.

But be careful. Auto-debit can lead to problems if you’re not paying attention.

The Good. Ultimately, the goal of auto-debit is to make sure that payments are made on time. This benefits both the lender (who wants your money) and the borrower (who doesn’t want to miss a payment and get hit by late fees and a damaged credit report). For the most part, auto-debit works well for people, particularly those who find it challenging to have to keep track of multiple monthly bill obligations.

The Bad. As with any program of any kind in any context, auto-debit is not perfect and there can be problems. Sometimes a payment will not go through; this could be because of an issue with your bank, or with the loan servicing company. Sometimes, the wrong amount may be debited—either not enough, or too much. This is especially true when borrowers are on some sort of time-limited repayment plan (such as Income-Based Repayment (IBR)) that ends unless the borrower re-applies or affirmatively contacts the loan servicer.

The Ugly. If you’re not paying attention and a change or an error occurs, things can get messy. If there’s a problem with the auto-debt that prevents payments from going through, you will get hit by late fees and a nasty mark on your credit report, even if it wasn’t your fault. You may even default on your loan, which is serious business. If you don’t check in with you student loan account, and you don’t notice a change in your payment amount, you could have a massive payment deducted from your checking account after the fact. This happened to many borrowers last year who did not re-certify their income for the Income-Based Repayment (IBR) program.

Bottom Line. Overall, I think auto-debit is helpful for people. But it is not an excuse to be asleep at the wheel. Failure to regularly monitor your account can lead to pretty serious consequences if there are unnoticed changes or problems, and it can be very difficult to correct these issues after-the-fact. So if you’re going to get on auto-debt, make it a habit to regularly check your student loan account and bank account to be sure everything is properly functioning.

6 Tips to Avoid IBR-Related Nightmares

| Income-Based Repayment

Many of you have heard of Income-Based Repayment (IBR), the federal student loan repayment program that calculates your monthly payment based on your income. Every year, your monthly payment amount must be recalculated based on changes to your income and family size. This means that borrowers have to affirmatively re-apply for IBR and submit proof of income every year. The problem is that this process is not as easy as it should be, and there are often errors and delays that cause serious problems for borrowers. I experienced this myself last year when I reapplied for IBR.

I just successfully completed my own annual IBR re-certification for the next 12 months, andwhile I had some worries, it turned out just fine. I thought it would be a good time to provide some tips based on my own experiences. Following these pointers will not, of course, guarantee that things will go smoothly for you (trust me, if I could press a button to make federal loan servicing an efficient and pleasant process, I would). However, this may help:

  • Know when your current IBR period expires. Your monthly payment amount under IBR lasts for 12 months, and at the end of that 12 month period, you will be automatically placed on the Standard repayment plan (often with much higher payments) if you don’t reapply for IBR and update your income information. Figure out when that deadline is, and mark your calendar.
  • Reapply for IBR well before the end of that 12-month period. Your federal loan servicer is supposed to notify you 90 days in advance of the expiration of your 12-month IBR period so you can send in income documentation to remain on IBR for another 12-month period. Unsurprisingly, that does not always happen. Be proactive. Contact your servicer 3 to 4 months prior to the end of your current 12-month period (mark your calendar for that as well), get instructions on how to re-apply, and start the process.
  • Don’t wait until the last minute. As soon as it is time to re-apply for IBR, do it. Do NOT procrastinate.
  • Don’t forget to include proper proof of income with your application for IBR: either your tax return showing your Adjusted Gross Income for this year or the prior year, or other recent income documentation (such as a pay stub). The documentation cannot be too dated. Your servicer can provide you with specific requirements and instructions for income documentation.
  • Follow up, follow up, follow up. Don’t just submit everything and assume that things will automatically go smoothly. It’s annoying, but you should follow up with your federal loan servicer regularly (I’d say every 2 to 3 weeks) to see where things are. The process can take anywhere from a couple of weeks to a couple of months, and you don’t want your application to get lost in a stack of papers on someone’s desk.
  • If there’s a problem, get a manager involved. Front-line customer service representatives are often well-meaning and well-intentioned, but they may not be equipped to handle complicated servicing issues or questions. If something goes wrong, ask to speak to manager, they may be able to help you. And if things still don’t get fixed… well… I know an attorney who helps people with this stuff.

While these tips won’t ensure that everything goes perfectly, this may help reduce some of the headaches you could otherwise experience. Good luck!