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

My Student Loan Reform Predictions

| Default Pay-As-You-Earn Policy & Reform Private Student Loans

It’s 2015, and the new Republican Congress will be taking up legislative business soon. Some people think that the discord and dysfunction in Washington is here to stay, since we had a divided government for several years already (and the Republican takeover of the Senate doesn’t change that). Others think that the President will be more willing to compromise on certain issues now, because he wants to leave behind a legacy in his final two years in office.

There are “whispers” of rather major student loan reforms that I have been hearing about lately. Many are simply rumors or speculation. But undoubtedly, student loans continue to be a major national issue, and they’re not going away. Both Republicans and Democrats recognize that the system isn’t working, and both parties have ideas about how to fix it (or at least mend it). I think we are going to see some big changes in the coming year or two in certain areas, and no movement in others.

Here’s my speculation (and that’s all this is- speculation):

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Insourcing Collections: Good Idea or Bad Idea?

| Default Pay-As-You-Earn Policy & Reform Private Student Loans

As some of you may know, the current system that the U.S. Department of Education uses to collect on defaulted federal student loans is… messy. To put it nicely.

The Dept. of Education contracts with over 20 individual private third-party debt collection agencies to pursue defaulted federal student loan borrowers. Individual student loan accounts are often shuffled from agency to agency, leaving borrowers confused and unsure about who is actually handling their student loan. The government has paid these agencies billions of dollars over the past several years, but numerous reports have chastised the Department for shoddy oversight, allowing abuses and violations of the law to run rampant. The Department continues to contract with agencies accused of serious, systematic violations of the law. Meanwhile, default rates are only getting worse.

Something clearly isn’t working.

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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.

REMINDER: Sallie Mae to Become Navient

| Pay-As-You-Earn Private Student Loans

Got Sallie Mae student loans? Read on.

I blogged about this when this was first announced, but it is a good time to remind everyone that Sallie Mae has split into two companies: Sallie Mae and Navient. This fall, Sallie Mae will be transferring the servicing and billing operations of federal student loans and certain private student loans to Navient. So if you have been dealing with Sallie Mae, you will likely soon be dealing with Navient instead.

This is not quite the same thing as one company selling your loans to another company. Rather, the servicing arm of Sallie Mae is branching off, becoming a separate company, and changing its name to Navient. Nevertheless, changes to student loan servicing can be a confusing and scary process if it comes as a surprise.

If you have student loans through Sallie Mae, what does this mean for you?

  • You should receive an email or letter from Sallie Mae notifying you of any changes. If you do not receive an email or letter, you should contact Sallie Mae directly to confirm that your loans will be through Navient.
  • Sallie Mae says that if you are enrolled in auto-debit, your payments should continue to be automatically withdrawn from your bank account. If I were you, I would monitor your bank account to make sure this is actually the case. If a payment is not withdrawn, contact Sallie Mae or Navient.
  • If you make your payments manually each month via a check, Sallie Mae requests that you change the payee to Navient, but all other information can stay the same. Before making any changes to your billing practices, I suggest you contact Sallie Mae/Navient to confirm the details.
  • Online payments will be made to Navient (not Sallie Mae) via Navient.com.

Want more information from Sallie Mae directly? Visit SallieMae.com/future, or contact the company by phone.

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.