Boston Student Loan Lawyer

Law Office of Adam S. Minsky

Federal Employees During the Shutdown

| Loan Forgiveness

As the federal government shutdown drags out into its third week, furloughed and non-paid federal employees are beginning to feel the squeeze. Many employees have student loans and may have trouble paying their bills the longer this lasts. What can they do?

  • For federal loans, it is best to continue making your payments, but if you are unable to pay your bill, you can request a temporary economic hardship forbearance. Just keep in mind that interest continues to accrue during the forbearance period. Also, forbearance will not count towards loan forgiveness. So, it should only be used as a temporary, short-term fix.
  • Private loans are much more problematic. Forbearance options will be limited at best, and private lenders will likely be unwilling to work with borrowers or be flexible with payments. Borrowers should be prepared to continue making payments if they can, since missing even one or two payments can cause a private student loan to go into default. If you are unsure about your private student loan forbearance options, you can contact your private lender.

Meanwhile, as the country speeds towards default, I don’t have anything significantly new to report about federal student loan operations or federal student loan servicing. Check out last week’s post, as the situation is mostly unchanged since then. If the country breaches the debt limit this week, we might start to see more serious impacts. Hopefully it will not come to that.

Watch Out For These “Public Interest Loan Forgiveness” Pitfalls

| Loan Forgiveness

As many of you know, Public Service Loan Forgiveness (“PSLF”) is a fantastic program designed to incentivize public service work. Eligible borrowers can get their loans forgiven after 10 total years of payments (or, more accurately, 120 individually qualifying payments, which might actually take longer than 10 years).

  • The tricky aspect of PSLF is determining what counts as a “qualifying payment.” This is not a program whereby you simply work for a nonprofit organization or government entity and your loans just get magically forgiven. Unsurprisingly, the U.S. Dept. of Education does not make this easy. Each payment you make will be scrutinized to determine if it qualifies as a “qualifying” payment that will count towards the PSLF program. If any element of “qualifying” is missing, it won’t count. Here are some things to be mindful of:
  • The program only applies to “Direct” federal loans, which are loans lent directly by the U.S. Dept. of Education. Payments made to non-Direct loans (such as FFEL loans, HEAL loans, or Perkins loans) don’t count.
  • Not every repayment plan will count towards PSLF, even for Direct loans. For example, are you on the Extended or Graduated plan? Sorry, you’re out of luck, even if you work for a qualifying employer.
  • For a payment to count towards PSLF, it must be made “on time.” That obviously means you can’t be late. But it also means you can’t be too EARLY. If you jump the gun and make your monthly payment before your monthly bill is generated, it might not count.
  • Forbearance and deferment periods do not count towards PSLF, even if you are making voluntary payments while working in qualifying employment.
  • Not all nonprofit organizations will be considered qualifying employers. Don’t just assume that because you work for a nonprofit organization that it qualifies as eligible employment. Certain types of nonprofits (such as partisan political organizations) are ineligible.
  • Under current regulations, you have to remain in qualifying employment, and continue making monthly payments, at the time that you submit your application for PSLF. You also have to be in qualifying employment and be making regular monthly payments at the time that your loans actually get forgiven. I recently wrote about this.

Just some things to be aware of. Don’t ever assume that the U.S. Department of Education has made things simple for you (do they ever do that?).

How a Student Loan Can Double in Under 10 Years

| Loan Forgiveness Policy & Reform

I often get contacted by people who are terrified and bewildered by their student loan balances. They originally borrowed a certain amount, and that balance has grown enormously over time. How is this possible? How did they get here? How is this okay?

Well, it has to do with how interest accumulates, how you are repaying your loan, and how things went wrong along the way (such as by defaulting). Let me walk you through an example where a student loan can double in under 10 years.

Sally takes out, say, $45,000 in federal student loans. In this example, let’s say that one-third of those loans, $15,000, are “subsidized” (meaning the government pays interest while Sally is in school) and the remaining $30,000 is “unsubsidized” (meaning interest accrues while she is in school). I’m going to give these loans an interest rate of 6.8%, a fairly average interest rate for federal student loans (current rates are lower, but they will increase again in the future).

STARTING BALANCE: $45,000

Step 1: While in School. Let’s say Sally is in school for 5 years, and for the sake of simplicity, I’m going to say she took out all of those loans during her first year. During those five years, no payments are due, and interest does not accrue on the $15,000 of subsidized loans. Interest does, however, accrue on the $30,000 of unsubsidized loans at 6.8%. That’s over $2,000 per year in interest accrual, and by the time Sally graduates after 5 years, her overall loan balance is $10,200 higher than it was when she started, all because of interest.

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Do You Know About All the Loan Forgiveness Programs?

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

Let’s face it, there’s just not a lot of good news these days about student loans. This year’s graduating classis the most indebted class in history. The U.S. Dept. of Education is transferring people to new loan servicers again, causing some serious headaches for borrowers. Congress and the President can’t agree on anything, but they managed to get together in a rare, bipartisan agreement last month to pass a terrible student loan interest rate bill.

But it’s not all bad. No, seriously, there’s some good stuff out there, and I try to let you all know about it when I can.

Today’s post is about loan forgiveness, which (let’s be honest) is everyone’s dream. Not everyone is going to get his or her loans forgiven. In particular, most private student loans have no forgiveness options at all. And even for federal loans, the forgiveness programs out there have tricky eligibility requirements. But these forgiveness programs are real, they are out there, and they can be hugely beneficial to student borrowers. Here’s an overview:

  • Public Service Loan Forgiveness (PSLF). This is probably the most well-known loan forgiveness program currently available, and it provides for the complete forgiveness of a borrower’s federal loan balance after 10 years of repayment if the borrower works full-time in qualifying public service employment. But the eligibility requirements can be a little tricky. You have to have the right type of loan (not all federal loans are eligible), the right type of repayment plan (not all repayment plans are eligible), the right type of employment (not everything you might consider “public service” will qualify), for the right amount of time (120 payments over 10 years that satisfy all the above eligibility requirements). That’s a lot to remember. And since the program is not retroactive prior to 2007, we won’t know how this program will actually work out until 2017. But a lot of borrowers stand to benefit from this, as long as they do everything right. No pressure.
  • Teacher Loan Forgiveness. There are forgiveness options available to teachers who teach certain subjects and work in certain types of schools in traditionally underserved communities. Unlike PSLF, you don’t have to work for 10 years to start seeing the benefits, although the amount that gets forgiven is capped. You can subsequently get the rest of your loans forgiven through PSLF (as long as you meet those requirements).
  • Civil Legal Assistance Attorneys Assistance. There are limited forgiveness programs available to attorneys employed in civil legal services. These forgiveness awards are capped on an annual basis, and borrowers who benefit from these awards may not necessarily be making progress towards PSLF at the same time.
  • Perkins Loan Forgiveness. Federal Perkins loans are special and have their own provisions governing repayment, default, and loan forgiveness. Perkins loans are also eligible for loan forgiveness if you work in certain specialized professions in education, health care, law enforcement, the military, the PeaceCorps or AmeriCorps, or as a public defender or prosecutor. Forgiveness comes in “chunks” after a certain number of years of service.
  • Employer-based Loan Forgiveness. While the above loan forgiveness programs are tied to professional fields, specific employers also may offer loan forgiveness. For example, the National Institutes of Health and the National Health Service Corps both offer generous loan forgiveness to employees who meet certain criteria. PeaceCorps and AmeriCorps volunteers may be eligible for forgiveness or cancellation of interest for their federal loans while serving. Check with your employer to see if there are any loan forgiveness or repayment assistance programs available to you.
  • Repayment Plan-Based Loan Forgiveness. The above forgiveness programs are largely tied to employment, but certain federal loan repayment plans have their own built-in loan forgiveness provisions. Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) both provide for loan forgiveness after 25 years of repayment in the program, while the new Pay-As-You Earn (PAYE) program provides for loan forgiveness after 20 years of repayment in the program.
  • School-Based Loan Forgiveness. Many schools, particularly professional schools (such as law schools) offer their graduates loan repayment assistance (which is essentially loan forgiveness) if they work in certain public service professions. Schools provide lump-sum payments to borrowers (usually based on need-based criteria) that may start off as a “loan” that you can use to pay your student loan bills (federal or private), and then as long as you remain eligible for the program, the “loan” converts to a grant that you don’t have to repay. My law school offers such a program. Check with your school’s financial aid office to see if they offer any loan repayment assistance or forgiveness programs.

Why “10-Year” Public Service Loan Forgiveness Can’t Happen in 10 Years

| Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is, in my opinion, one of the best federal loan programs out there for borrowers. It provides a huge incentive for borrowers with high federal loan debt burdens to enter public service, since it allows them to get their loans forgiven after 10 years of working in qualifying public service employment.

Except, it’s actually a little more complicated than that.

First of all, it’s important to understand that the technical requirement to obtain PSLF is not 10 years of public service; it’s 120 individually qualifying payments while you work in public service (which, if consecutive, totals 10 years). With that in mind:

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Yes! A Private Student Loan Refinancing Bill

| Loan Forgiveness Policy & Reform Private Student Loans

First, the bad news. Congress failed to pass a bill to stop interest rates on new federal Stafford loans from doubling. The deadline was July 1. Luckily, most of you won’t be impacted by this. Still, it’s disappointing, to say the least, as Congressional dysfunction and hyper-partisanship continue to rule our federal government.

However, there is also some encouraging news. As I’ve been blogging about recently, there have been a ton of new student loan reform proposals introduced into Congress. Some of them offerbroad, comprehensive reform of the entire system. Others are more targeted towards a particular problem, mostly the interest rate issue. They are coming from both political parties, which I think is great.

The latest reform bill comes from Ohio senator Sherrod Brown, and addresses private student loans. Of the $1 trillion dollars in total student loan debt in the United States, over $150 billion of it is private student loan debt. Private loans are terrible because they typically have inflexible terms and higher interest rates than federal loans, often even higher than the just-doubled interest rates of new federal Stafford loans. In fact, average private loan interest rates are 8-10%, which is, in a word, insane. They also have none of the benefits of federal student loans, such asIncome-Based Repayment, consolidation, and loan forgiveness. The Consumer Financial Protection Bureau recently found that private student loans are holding back the economic recovery.

Senator Brown’s bill, called the “Refinancing Education Funding to Invest for the Future Act,” grants the U.S. Treasury the authority to create a government-backed financing vehicle that would allow borrowers to refinance high-interest private student loans into new loans with much lower interest rates and more flexible terms.

This could be a huge benefit to borrowers. A private student loan with a balance of $20,000 and an interest rate of 10% can accumulate almost $7,000 in interest over three years. The borrower would have to make monthly payments of nearly $200.00 just to keep the balance at $20,000 (the balance would not even decrease). However, if that same loan had an interest rate of 3%, only about $2,000 of interest would accumulate over the same three-year time period. The borrower’s monthly payments of $200.00 would not only pay off this interest, but would reduce the principal balance to under $15,000 after three years. So this could be a huge help to borrowers with high-rate private student loans.

To read more about this bill, click here.

An Alternative (and Seriously Thought-Provoking) Student Loan Reform Proposal

| Loan Forgiveness Pay-As-You-Earn Policy & Reform

We’ve been seeing some movement recently in terms of reforming the federal student loan system. The Obama administration created the new Pay As You Earn repayment plan, an income-sensitive plan with low payments and faster forgiveness than the existing income-sensitive options. We also saw the introduction of the Student Loan Forgiveness Act of 2012 and The Student Loan Fairness Act of 2013 in Congress, two powerful student loan reform bills that would go a long way to fixing a lot of what’s wrong with the federal student loan system.

There is another, less-known student loan reform bill in the works, and people are starting to talk about it. It’s a bill authored by Rep. Tom Petri (R-WI) called the Earnings Contingent Education Loan (ExCel) Act.

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Public Service Borrowers Are Being Switched to a Different Fed Servicer

| Loan Forgiveness

If you’ve been following this blog over the past couple of months, you’ll know that the Dept. of Education has recently contracted with several private companies to service Direct federal student loans. These contracted servicers have been causing many problems for borrowers, including bumping people off of Income-Based Repayment and messing up Direct loan consolidations.

The Dept. of Education also recently created a new certification form for borrowers working in public service, so that borrowers can periodically provide a record for the Dept. of Education that they are on track to obtain Public Service Loan Forgiveness. This is great news for public service borrowers.

I have recently confirmed that borrowers who submit their Public Service Loan Forgiveness certification forms will have their loans re-transferred to a specific federal contractor, the Pennsylvania Higher Education Assistance Agency, which runs the website www.MyFedLoan.org. Although I have no way of actually measuring this, I have heard from several borrowers that MyFedLoan is a relatively smoother system than that of MyEdAccount and some other servicers. I’ve also heard that their customer service tends to be a bit better. So, this might actually be a good thing. Either way though, you won’t have a choice. Once your Public Service Loan Forgiveness certification form is processed, you’ll see you’ll loans disappear from whatever servicer they are currently with, and then you will be contacted by MyFedLoan (or you’ll just see your loans re-appear on that site).

Fun times in the world of federal student loans, no? It’s a roller coaster of excitement, really.

Does Public Service Loan Forgiveness Exclude Religious Work?

| Loan Forgiveness

A couple of weeks ago, I posted the very exciting news that the Department of Education created a new certification form for the Public Service Loan Forgiveness Program (PSLF). This form will allow borrowers to certify that they are in eligible employment for the 10 years of public service that must be completed to get loan forgiveness under the program.

Again, here’s how the program works. If you make the right type of payments (IBR, ICR, or standard payments) on the right type of federal loan (Direct loans), you might be eligible for complete federal loan forgiveness of any remaining balance after 10 years of payments, provided you work full-time for either a government entity or a 501(c)(3) nonprofit organization.

What’s interesting is that if you look at the certification form, it includes the following text: “a borrower’s employment does not qualify [for PSLF] if the borrower’s job duties are related to religious instruction, worship services, or any form of proselytizing.” This effectively excludes from PSLF any clergy or employees of a religious organization that have any of the above job duties, even if that organization is a 501(c)(3) nonprofit organization.

This, of course, is a major problem for federal student loan borrowers who took on a lot of debt in order to go to theology school or to become ordained as a religious or spiritual leader. Naturally, these individuals tend to earn fairly low salaries in their respective fields, and many recent graduates probably expected that their work would qualify for PSLF, given that religious organizations and institutions tend to be registered as 501(c)(3)’s. Although the original legislation and accompanying regulations that created the PSLF program had a similarly-worded religious exemption for non-profit organizations that were not 501(c)(3), we assumed that work for any type of 501(c)(3) organization would qualify as eligible employment. The language in the new certification form calls this into question, and the government’s legal basis for this is unclear.

More on this to come, as this is all quite new.

Fantastic News for Borrowers Seeking Public Service Loan Forgiveness

| Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is one of the best-kept secrets of federal student loans. This program provides for complete forgiveness of remaining federal student loan debt after 10 years of qualifying payments (payments applied to Direct federal loans under the IBR, ICR, or Standard repayment plans) if you work for any level of government or a 501(c)(3) non-profit organization. It is a *huge* incentive for borrowers with high student loan debt burdens to enter public service.

One of the problems with this program, however, was that there was no way for borrowers to officially keep track of their public service employment (the program does not require 10 consecutive years of public service- just 10 years in total). Since the earliest any borrower will be eligible for forgiveness is around the year 2017, we were all left wondering how borrowers were going to prove that they actually worked in public service.

Well, great news. The Department of Education has just released three brand-new forms to help borrowers apply for PSLF. A big thank-you to my friend and colleague, Heather Jarvis, for posting these forms on her website. Here are the three forms:

  1. Letter to Borrowers explaining the process
  2. Employment Certification Form
  3. Instructions for completing the Certification Form

One of the exciting things about the Employment Certification form is you do not need to wait until the end of the 10-year period to send this in. You can complete and send in the form as you complete your public service work, and the Department of Education will keep it on file. I recommend you send this in once each year if you’re working in a public service job, and also whenever you change to a different public service job. Be sure to make a copy of the completed form for your own records (the Department of Education is notorious for “not receiving” things).