Boston Student Loan Lawyer

Law Office of Adam S. Minsky

Thank You For Sharing Your IBR-Nightmare Stories- Keep ‘Em Coming

| Income-Based Repayment

Following my recent article about the new federal student loan servicer arbitrarily kicking borrowers off of IBR, I have been receiving lots of emails from you all about your experiences. Thank you! The National Consumer Law Center (NCLC) is working hard to try to get the Department of Education to fix these problems.

Please keep the stories coming! Every single one is helpful. If you’ve experienced problems with the new federal student loan servicer (www.myedaccount.com), let me know. Please provide the following info:

  1. A detailed description of the problems you experienced, as well as your attempts to correct them.
  2. Your name and occupation.
  3. Whether you are willing to share your name and email address with the Dept. of Education (through NCLC’s efforts to collect stories and correct the problems).
  4. Whether you are willing to speak directly with the Dept. of Education, with NCLC’s support, about your specific experiences.

Again, thank you all, this is enormously helpful.

State Student Loans: The Worst Kind of Student Loan?

| Private Student Loans

Most student loans fall into two categories: federal student loans and private student loans. Federal student loans have unique rights and benefits. Private student loans are generally more problematic and are much more inflexible when borrowers have trouble making their payments.

Defaulting on your federal student loans is dangerous because the federal government can garnish your wages, seize certain federal benefits, and intercept your tax refunds, all without a court order. In some ways, this makes federal student loan defaults more dangerous than private student loan defaults, since private lenders need to take you to court first in order to forcibly collect from you. The flip side, however, is that there are usually clear ways of bringing federal student loans out of default: either through a special repayment program called “rehabilitation,” or consolidation. While private student lenders do not have the same collection powers as the federal government, rehabilitation and consolidation exist only for federal student loans; they not options for bringing private student loans out of default. (For more on default, check out my previous article on the subject.)

State-based student loans are, in my opinion, a monstrous hybrid of federal and private student loans. These loans are usually originated by a quasi-public state agency or a state-supported non-profit organization. Thus they are often very attractive to students who are seeking to avoid the big, bad banks and commercial lenders. Moreover, these loans often have somewhat more favorable terms than purely private student loans, such as lower interest rates, longer repayment terms, or more flexible forbearance options.

If you ever default on a state-based student loan, however, you’re in trouble. Many state-based lenders retain some of the scary collections powers that the federal government does: without a court order, the state can seize state benefits, intercept state tax refunds, and in some cases, garnish your wages. To make matters worse, because state-based student loans are not federal student loans, they are ineligible for federal rehabilitation or consolidation programs to bring the loans out of default. This means that, much like a defaulted private student loan, you’re effectively stuck with it, and there’s not a whole lot you can do unless you can reach a settlement agreement.

My advice? Avoid state-based student loans.

“Special” Direct Consolidation Loans and the Obama Student Loan Initiative

| Policy & Reform

Recently, the Obama Administration launched a student loan initiative designed to help certain student loan borrowers. The initiative has two parts. Part I deals with a modified Income-Based Repayment program. Part II creates a new type of Direct consolidation loan: a “Special” Direct consolidation loan.

If you remember, consolidation can be a great tool to manage your federal student loans. Special Direct Consolidation loans have a couple of added benefits:

  1. Repayment Term. If you were making payments on your federal student loans, and then took out a regular Direct consolidation loan, your repayment term would start over. For example, if you were on a 10 year repayment plan for your individual loans and made payments for two years, your 10 year clock would start over on the new Direct consolidation loan. For Special Direct Consolidation loans, each loan that is consolidated retains its original repayment term. Since you get credit for those prior payments, you’ll pay less over time than you would with a regular Direct consolidation loan.
  2. Interest Rate. The maximum interest rate for both types of consolidation loans is 8.25%. However, Special Direct Consolidation loans might be eligible for a 0.25% interest rate reduction, which would mean you’d pay slightly less over time.

Eligibility

To be eligible for the Special Direct Consolidation loan, you must have at least one Direct federal student loan, and one FFEL federal student loan. For an explanation of the differences between these two types of federal loans, readmy previous article on that topic. The following loans are *not* eligible for Special Direct consolidation loans (although they might be eligible for regular Direct consolidation loans): defaulted FFEL loans, Perkins Loans, and certain types of federal health loans. Private student loans are ineligible for any federal student loan consolidation program.

Availability

Special Direct Consolidation loans are being offered from January 2012 until June 30, 2012, so only six months.

3 Easy Tips For Monitoring Your Student Loans

| Articles

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.

MyEdAccount Causing HUGE Problems for Borrowers on IBR

| Income-Based Repayment

For borrowers on Income-Based Repayment (IBR) who use the new loan servicing system for federal loans atwww.myedaccount.com, your life may be getting a little more stressful.

Here’s the way IBR is supposed to work. When you get onto this repayment plan, which caps payments at a percentage of your income, the Department of Education is supposed to contact the Internal Revenue Service each year to get borrowers’ income information to re-caluclate their annual monthly payment amounts. Once you’re on IBR, you stay on IBR unless you decide to switch repayment plans or you are no longer eligible due to your income.

Well apparently, the Department of Education is no longer contacting the IRS to obtain borrower income information, and is instead requesting income verification directly from borrowers. If borrowers do not respond, or borrowers never receive the request in the first place (which has been occurring), borrowers are bumped off of IBR, or they experience substantial and seemingly arbitrary hikes in monthly payment amounts. The payments will be reduced once the borrower “re-applies” for IBR, but the “gap” for processing time may mean temporarily higher monthly payments, or the borrower will have to go into temporary forbearance.

This is causing a lot of problems for borrowers- including me, since I am also on IBR. The National Consumer Law Center (NCLC) is trying to collect information on these problems in an attempt to work with the Department of Education to correct this. If you are experiencing problems of this nature, please email me at asminsky@minsky-law.com. Include your name, your occupation, and a synopsis of your problem, and I will pass your information on to NCLC.

Old-School IBR vs. New-School IBR, and the Obama Student Loan Initiative

| Income-Based Repayment

Income Based Repayment (IBR) is one of the most beneficial programs for federal student loan borrowers. The basic premise is that no matter how much you owe in federal student loans, your monthly payment will be calculated based on a small percentage of your annual adjusted gross income. After 25 years of payments, whatever balance remains will be forgiven by the federal government. If you work in public service, that repayment period can be dropped to only 10 years under the Public Service Loan Forgiveness Program.

Recently, the Obama administration announced a new student loan initiative that purported to change IBR in a real, concrete, beneficial way. Unfortunately, these changes do not apply to everyone, and there’s been a lot of confusion out there about what the benefits are, and who is eligible to receive them. Let me try to clarify things.

Old-School IBR. Under the current IBR plan (which is still a fairly new program, so I have mixed feelings about calling it “old school”), payments are capped at 15% of your discretionary income, and any remaining balance is forgiven after 25 years of payments (10 years if you work in public service). Anyone who has federal Direct or FFEL loans can qualify for IBR (but only Direct loans can be forgiven for working in public service).

New-School IBR. The original legislation that created IBR provided for an IBR “improvement” in 2014. That improvement would lower the payment cap to 10% of annual adjusted gross income, and reduce the repayment period to only 20 years of payments (the 10-year public service loan forgiveness program remains the same). What the Obama administration did this year was to bump up the IBR improvement date so that it takes effect in 2012, instead of 2014.

The Catch. There’s always a catch, isn’t there? Unfortunately, not everyone is going to be eligible for the New-School IBR; in fact, most people aren’t. In order to be eligible, students must have first borrowed federal student loans in 2008 or later, and also must borrow a federal student loan in 2012. This effectively cuts out from eligibility most graduates prior to the class of 2012.

The Tiny Silver Lining. The regulations governing New-School IBR have not yet been written, so nothing is necessarily set in stone. But all indications (so far) say that New-School IBR will generally not benefit people who are already out of school and in repayment.

So Who the Heck Owns My Student Loan?

| Articles

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?

Read More

Consumer Financial Protection Bureau Is Seeking Personal Stories About Private Student Loans

| Policy & Reform Private Student Loans

The Consumer Financial Protection Bureau (CFPB) is a new federal government agency with a mission to provide better oversight and stronger regulation of the financial industry. CFPB has put out a call for personal stories aboutprivate student loans. As you may know, private student loans are exceptionally risky and problematic for millions of student loan borrowers: they often have higher interest rates, little flexibility, and can’t be discharged in bankruptcy, meaning student borrowers could be stuck with them forever.

We’ve got less than 60 days to tell CFPB about all the problems associated with private student loans. If you have a personal story that you’d like to share, please visit CFPB’s private student loan portal and tell them your story. Let’s fill their inbox and hopefully, we can make some real change.

Check Out Binksty.com

| Articles

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 🙂

Student Loan Benefits for U.S. Military Service Members and Veterans

| Articles

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