Boston Student Loan Lawyer

Law Office of Adam S. Minsky

Details On the President’s Student Loan Initiative

| Policy & Reform

We now know what the President’s student loan initiative entails. Unfortunately, while early reports indicated that the initiative involved a “debt swap” that allowed private student loans to be consolidated into federal student loans, it is now clear that this this is far from true. The initiative still has some real benefits for student loan borrowers, but it is significantly limited.

Improved Income-Based Repayment. If you remember, Income-Based Repayment (“IBR”) for federal student loans caps your monthly payment at approx. 15% of your discretionary income, regardless of how much federal student debt you have. This is a huge benefit. Moreover, after 25 years of payments, whatever remains is forgiven.

In 2014, IBR was slated to improve for new borrowers by lowering the payment even further, to 10% of discretionary income, and reducing the repayment period to 20 years. The President has bumped-up the IBR improvement from 2014 to 2012, effectively giving new student borrowers greater relief two years sooner than planned. The changes could lead to a 33% reduction in monthly student loan payments for a borrower on IBR, and knocking off 5 years of payments is a big deal too. However, an important point here is that these changes do not apply to people who are already on IBR; it only applies to students who select IBR starting in 2012.

Loan Consolidation Incentive. While early reports indicated that the President’s proposal involved relief for private student loan borrowers through consolidation, we now know that is not true. This portion of the initiative is geared towards federally-backed loans with a private lender (such as Sallie Mae), entirely different from purely private student loans. Although these loans are already eligible for Direct federal loan consolidation (which is not made clear in the administration’s press release), the initiative encourages students to consolidate their loans through the Direct federal lending program by offering a 0.5% interest rate reduction. Importantly, by consolidating through Direct loans, borrowers might become eligible for IBR.

Although the initiative will produce a real, concrete benefit for millions of borrowers, it falls well short of initial expectations, and does not do much to provide relief for borrowers who are struggling under the weight of oppressive private student loan debt. The IBR changes will only impact people who have not yet selected IBR as their repayment plan, and the interest-rate consolidation incentive is a modest offer for a consolidation program that, essentially, already exists.

New Direct Loan Website Causing Big Problems for Borrowers

| Current Events

A couple of weeks ago, the Department of Education’s Direct Loan program switched to a new a new website, run by a private company, for students to manage their Direct federal student loans. If you have Direct federal loans, you will have to manage your loans here: https://www.myedaccount.com/ (note that this is a “.com” address, as opposed to a “.gov” address).

This website has been causing enormous headaches for students trying to pay their student loan bills. The website has been functioning only sporadically, so many student borrowers have not been able to make their payments online. The Direct loans call center has been completely overwhelmed by phone calls from distressed student loan borrowers; after long wait times, borrowers are then told by rude customer service representatives that they cannot pay by phone. If you can’t make your payment by phone or on the website, you will have to mail your payment.

Anecdotally, customer service representatives are informing Direct loan borrowers that delinquent (late) payments will not be reported to credit bureaus unless they are 90 days past due, and the Department expects that everything will be smoothed out within 90 days. Let’s hope so. In the meantime, watch your credit report for any unfair “late” marks on your Direct federal loans if you’re having trouble paying because of these issues.

For more, click here and here.

 

Delinquency and Default: What’s the Difference?

| Default

If you don’t make your student loan payments, there can be serious consequences that impact your borrowing rights, your credit score, and ultimately your ability to pay off your student loan. But what exactly happens when you can’t pay?

Delinquency. When your student loan is delinquent, it means that you’ve missed at least one payment and your loan is in danger of going into default (discussed below). Think of delinquency as “pre-default.” Delinquency periods (the length of time before your loan goes into default) vary depending on your student loan. For federal student loans, you can be delinquent for up to 270 days (approx. 9 months) before you go into default. For private student loans, your delinquency period is usually far shorter, sometimes as short as 30 days. While your loan is delinquent, your lender or servicer may report the delinquency to credit reporting agencies, which could harm your credit.

You can cure the delinquency by either making your required past-due payment, or by exploring deferments and forbearances. It is very important to come up with a game plan before your loan goes into default. Tip: if you’re worried about becoming delinquent because you have trouble keeping track of all your student loan payments, you may want to explore auto-debit.

Default. Strictly speaking, default occurs when a borrower has broken the terms of the loan contract by failing to adhere to repayment obligations. Defaulted student loans are far more serious than delinquent ones. While you can cure delinquency relatively easily by making your payments or going into deferment/forbearance, once you’re in default, it may be difficult to get out.

Read More

Proposed Bill Would Give Student Loan Debt Collectors More Power to Harass You

| Policy & Reform

A proposed bill in Congress, which is supported by President Obama, would allow private collections agencies contracted with the U.S. Dept. of Education to “robo-call” cell phones of student loan borrowers who are in default. The change “is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cellphones,” the Obama administration wrote recently. Of course, what the administration did not mention is that collections agencies are authorized to add on collections fees of up to 18% of the balance of a defaulted federal student loan. So everyone wins, except student borrowers.

The bill is strongly opposed by consumer groups, including the National Consumer Law Center, which argues that this bill would give debt collectors more power to harass and abuse student loan borrowers (and any other debtor who has defaulted on their obligation). Indeed, debt collectors frequently violate fair debt collection laws already, but this bill would give them even more flexibility in doing so. Progressive Democrats and consumer rights groups are furious that the Obama administration has the same position as the banking and private debt collection industries.

For more on this bill, click here and here.

To register your opposition to the bill and contact your Congressional representative, click here.

To contact the White House and express your view, click here.

The Perks of Being a Teacher

| Loan Forgiveness

Being a teacher can be tough. Salaries are generally low (much lower than they should be, in my opinion), and increasingly, many school districts require teachers to obtain graduate degrees. Even in districts where this is not the case, earning your Master’s or even your Ph.D. can be crucial if you want to move up in the teacher salary scale. Of course, as we all know, education is not cheap in this country, so most teachers have to finance their careers through student loans. Talk about a disincentive to becoming a teacher… years of schooling, tens of thousands of dollars in student debt, followed by years of low salaries and difficult monthly student loan payments.

Luckily, there are many beneficial programs out there to help teachers who are federal student loan borrowers. These are serious perks, so check them out…

Read More

September 11th Student Loan Discharges

| Articles

There is a little-known discharge (cancellation) option for federal student loan borrowers who are victims, or relatives of victims, of the September 11th terrorist attacks. This is a remarkable discharge in that it is the only discharge option available to borrowers because of a single historical event. (There is a natural disaster-based forbearance option for federal student loan borrowers, but that just postpones your payments, as opposed to canceling the entire loan balance.) Moreover, very few people know about this discharge option.

Here’s how it works:

You must be either a direct victim or first responder of the September 11th terrorist attacks, or be a spouse or parent of a victim. Eligible loans include Perkins loans, FFEL loans, and Direct Loans, including Parent PLUS loans. The loan balance must have been owed on September 11, 2001 (meaning the discharge won’t apply to, for instance, a relative of a victim who obtained a federal loan sometime in 2002).

If you know of anyone who might be eligible, spread the word, as this is probably the least-known discharge option for federal student loan borrowers.

Top 10 Best Cities for Recent Grads

| Articles

Two websites recently ranked the best cities for recent grads. This is, of course, an informal and unscientific ranking, but important factors include the city’s young adult population, the number of entry-level or low-experience jobs that were available, and the average rent of a one-bedroom apartment. See what cities are on the list here:http://www.huffingtonpost.com/2011/09/12/the-10-best-cities-for-re_n_958178.html (and yes, Boston is on there).

Tip: Auto-Debit Can Save You From Delinquency and Default

| Articles

If you have many separate student loans, keeping track of your monthly payments can be daunting. This task is made even more burdensome if you have federal loans that are serviced by multiple loan servicing companies, Perkins loans that are serviced by your college or graduate school, and private student loans from multiple lenders. When you have rent or a mortgage, utilities, car payments, cell phone payments, and other bills to manage on top of everything else, it’s easy to miss a student loan payment.

The problem is that missing a payment on any of your student loans can place that loan into delinquency. Delinquency is a fancy term that simply means you are behind on your payments. The problems is that certain loan servicers and lenders report delinquencies rather quickly to credit reporting agencies, which could damage your credit score. If you are delinquent for too long, your loan may be placed into default, which is bad news. While federal loans generally provide for several months of delinquency before a loan goes into default, some private student loan lenders are not nearly so accommodating, and your loan may be in danger of default sooner than you think.

One solution for dealing with this threat is to consolidate your federal student loans, since this can simplify the repayment process. Another easy solution is to enroll in auto-debit programs. Most student loan servicers offer this both for federal and private loans. An auto-debit program allows you to permit the lender/servicer to automatically debit your bank account or debit card for your monthly student loan payments. That way, you don’t have to worry about keeping track of every single student loan payment every month. Your only responsibility is to manage your budget so that you have enough funds available to cover all of your payments. You usually can set the date of the auto-debit, so you can choose to have all of your payments made on one single day each month, or you can split your payments up during the month if that’s easier for you. As far as I know, you can cancel any auto-debit program at any time, although there might be a period before the cancellation takes effect.

I’m enrolled in auto-debit programs for all of my student loans, and I find that it has made managing my repayment obligations much easier. It might be a little unnerving to not physically write that check or click that “pay now” button every month, but at least I don’t have to worry about missing a payment. I’d check it out if you haven’t already.

Major Credit Rating Agency Signals That The “Student Loan Bubble” May Burst

| Articles

We saw it with housing just a few years ago. Young, first-time, would-be homeowners were told how easy it would be to get an affordable mortgage. With aggressive marketing campaigns by mortgage companies that ramped up expectations of home ownership (without any discussion of potential risk), young people were persuaded to buy that house and get that mortgage, even though down the road they may not be able to pay. These mortgage companies then sold the high-risk mortgages to other companies, so everyone profited… until, of course, the homeowners reach a point where they no longer could pay (whether it was because of an adjustable interest rate that spiked, rising unemployment, or unexpected maintenance and expenses), and the whole bubble collapsed.

I’ve been saying for years that student loans are next. I don’t want to be right (I’ve got my own student loans that I’m dealing with), but now Moody’s, one of the three major credit ratings agencies, is acknowledging that we might be headed in that direction.

For the past twenty years, the cost of American higher education (both private and public) has been skyrocketing. Federal financial aid has not been keeping pace with these astronomical costs, so increasingly students are turning to expensive and risky private student loans to finance their educations. High school students and parents are told that this is an “investment;” that taking out tens of thousands of dollars in student loans will lead to a high-paying job, and it can all be paid off. But with a stagnant, sluggish economy and high-paying entry-level positions drying up, students are finding themselves with a fancy degree, lots of student debt, and no viable way of paying it all off. Youth unemployment is at a jaw-dropping 15%, and with recent deficit reduction legislation passed by Congress and signed by the President, borrowing will be even more expensive for students due to the elimination of subsidized federal loan programs.

Are student loans going to be the next bubble to burst? Read more here: http://www.huffingtonpost.com/2011/08/09/moodys-student-loans-bubble-burst

Zero-Interest Student Loans Offered in Rhode Island

| Policy & Reform

I was scouring the internet for some piece of good student-loan-related news to balance out all the gloom and doom that’s been dominating the airwaves and 24-hour news cycles. I came across this, and it’s definitely worth sharing.

Republican-turned-Independent Lincoln Chafee, Governor of Rhode Island, has introduced a zero-interest student loan program for nursing students who agree to work in the state after they graduate. The state expects to require 6,500 nurses by 2020, and the program is being used as an incentive to keep nurses working in Rhode Island after they graduate.

My sense is that this is an example of how student loan programs really can be used to further people’s education in a positive, productive, and fair way, and get them employed in stable, well-paying careers after they graduate. Students get to finance their program up-front with little-to-no borrowing costs and nearly-guaranteed employment, while the state gets to keep young talent within its borders. Sounds like a great deal to me. The program is being offered by the Rhode Island Student Loan Authority. Read more here, and also check out their loan forgiveness program for primary care providers.