Bankruptcy Discharge: On November 17, 2022, the U.S. Department of Justice issued new guidance as to how federal student loans were to be treated in bankruptcy cases. Until that date, discharge of student loans in bankruptcy was extraordinarily challenging, with only .01% of student loans included in bankruptcy being effectively discharged. Under the new guidance, however, the process has been streamlined and expanded significantly. Early results are showing that approximately 75% of federal student loans seeking discharge under the new guidance have been approved. Seeking a discharge in bankruptcy is not the right answer for all borrowers, but it is now a viable option when individual financial circumstances make it available.
There are also four (4) repayment plans where the borrower repays the loan in full based on the balance and interest rate. Monthly payments vary depending on the term of the loan which can be extended to 25 years.
Determining which plans are available and what the payments would be under each plan has been quite challenging for borrowers. While efforts are being made to simplify the process, seeking the counsel of a student loan attorney is invaluable to borrowers in ensuring that they are enrolled in the plan that minimizes their overall payments and leads to the shortest road to permanent forgiveness.
Borrowers also have a one-time right to consolidate their student loans. Consolidation creates a single new direct student loan held by the U.S. Department of Education. Consolidation can be used to automatically get a borrower’s loans out of default. Once a borrower completes a consolidation, they can take advantage of the many protections and options available under federal law. There are some tricky details that may arise, so having the assistance of a student loan attorney can save you from entering a less-than-favorable situation.
The Higher Education Act permits borrowers whose loans are in good standing and are facing a short-term financial issue the ability to enter several types of forbearance and deferral of payments. These actions temporarily pause the borrower’s obligation to make monthly payments until their financial situation improves. Interest still accrues on the loans, increasing the balances, and there is a limit to how many forbearances and deferrals a borrower may get during the life of their loans. Ironically, it has been found that when many borrowers contact their student loan servicers seeking assistance for their loan repayment, the servicers were opting to enroll borrowers in forbearances and deferrals, which is the quick fix, rather than taking the time to fully review their situations and get them enrolled into a proper long-term repayment plan that likely would include forgiveness. This failing has been noted clearly, both in the Department of Justice guidance on student loan discharge in bankruptcy and by the Administration in developing the new Saving on a Valuable Education Plan (SAVE).
Bankruptcy Discharge: On November 17, 2022, the U.S. Department of Justice issued new guidance as to how federal student loans were to be treated in bankruptcy cases. Until that date, discharge of student loans in bankruptcy was extraordinarily challenging, with only .01% of student loans included in bankruptcy being effectively discharged. Under the new guidance, however, the process has been streamlined and expanded significantly. Early results are showing that approximately 75% of federal student loans seeking discharge under the new guidance have been approved. Seeking a discharge in bankruptcy is not the right answer for all borrowers, but it is now a viable option when individual financial circumstances make it available.
There are also four (4) repayment plans where the borrower repays the loan in full based on the balance and interest rate. Monthly payments vary depending on the term of the loan which can be extended to 25 years.
Determining which plans are available and what the payments would be under each plan has been quite challenging for borrowers. While efforts are being made to simplify the process, seeking the counsel of a student loan attorney is invaluable to borrowers in ensuring that they are enrolled in the plan that minimizes their overall payments and leads to the shortest road to permanent forgiveness.
Borrowers also have a one-time right to consolidate their student loans. Consolidation creates a single new direct student loan held by the U.S. Department of Education. Consolidation can be used to automatically get a borrower’s loans out of default. Once a borrower completes a consolidation, they can take advantage of the many protections and options available under federal law. There are some tricky details that may arise, so having the assistance of a student loan attorney can save you from entering a less-than-favorable situation.
The Higher Education Act permits borrowers whose loans are in good standing and are facing a short-term financial issue the ability to enter several types of forbearance and deferral of payments. These actions temporarily pause the borrower’s obligation to make monthly payments until their financial situation improves. Interest still accrues on the loans, increasing the balances, and there is a limit to how many forbearances and deferrals a borrower may get during the life of their loans. Ironically, it has been found that when many borrowers contact their student loan servicers seeking assistance for their loan repayment, the servicers were opting to enroll borrowers in forbearances and deferrals, which is the quick fix, rather than taking the time to fully review their situations and get them enrolled into a proper long-term repayment plan that likely would include forgiveness. This failing has been noted clearly, both in the Department of Justice guidance on student loan discharge in bankruptcy and by the Administration in developing the new Saving on a Valuable Education Plan (SAVE).
Administrative Discharge: There are several administrative discharges of federal student loans available under federal law. These are available for individuals with total and permanent disabilities, borrowers who have passed away, closed schools, schools who made false certifications, and several others. The application to receive an administrative discharge can be complicated, so having a student loan attorney assist you in the process is wise.
Bankruptcy Discharge: On November 17, 2022, the U.S. Department of Justice issued new guidance as to how federal student loans were to be treated in bankruptcy cases. Until that date, discharge of student loans in bankruptcy was extraordinarily challenging, with only .01% of student loans included in bankruptcy being effectively discharged. Under the new guidance, however, the process has been streamlined and expanded significantly. Early results are showing that approximately 75% of federal student loans seeking discharge under the new guidance have been approved. Seeking a discharge in bankruptcy is not the right answer for all borrowers, but it is now a viable option when individual financial circumstances make it available.
Biden Administration Forgiveness: The U.S. Supreme Court issued its opinion on June 30, 2023 determining that the proposed immediate forgiveness plan from the Biden Administration required Congressional action and therefore was not allowed to proceed. The Biden Administration has been very active in granting forgiveness in many other situations, such as for-profit schools that closed, and has announced that they will once again seek forgiveness under the Higher Education Act (H.E.A.), but that is a long process that requires a public comment period and a significant revision in the existing rules. In short, it is unlikely that wide scale loan forgiveness will arrive any time soon, though forgiveness under an Income-Driven Repayment (IDR) plan is still available.
Income-Driven Repayment Forgiveness:
There are also four (4) repayment plans where the borrower repays the loan in full based on the balance and interest rate. Monthly payments vary depending on the term of the loan which can be extended to 25 years.
Determining which plans are available and what the payments would be under each plan has been quite challenging for borrowers. While efforts are being made to simplify the process, seeking the counsel of a student loan attorney is invaluable to borrowers in ensuring that they are enrolled in the plan that minimizes their overall payments and leads to the shortest road to permanent forgiveness.
Student Loan Consolidation
The Biden Administration launched the Fresh Start Plan on April 26, 2022 and it is scheduled to run until August 28, 2024. The Plan allows federal student loan borrowers a one-time opportunity to contact their servicer and have their loans taken out of default status. This is significant because many of the options that are available to assist federal student loan borrowers are only accessible when the loans are in good standing. Borrowers also have a one-time right to consolidate their student loans. Consolidation creates a single new direct student loan held by the U.S. Department of Education. Consolidation can be used to automatically get a borrower’s loans out of default. Once a borrower completes a consolidation, they can take advantage of the many protections and options available under federal law. There are some tricky details that may arise, so having the assistance of a student loan attorney can save you from entering a less-than-favorable situation.
Student Loan Forbearance & Deferrals
The The Higher Education Act permits borrowers whose loans are in good standing and are facing a short-term financial issue the ability to enter several types of forbearance and deferral of payments. These actions temporarily pause the borrower’s obligation to make monthly payments until their financial situation improves. Interest still accrues on the loans, increasing the balances, and there is a limit to how many forbearances and deferrals a borrower may get during the life of their loans. Ironically, it has been found that when many borrowers contact their student loan servicers seeking assistance for their loan repayment, the servicers were opting to enroll borrowers in forbearances and deferrals, which is the quick fix, rather than taking the time to fully review their situations and get them enrolled into a proper long-term repayment plan that likely would include forgiveness. This failing has been noted clearly, both in the Department of Justice guidance on student loan discharge in bankruptcy and by the Administration in developing the new Saving on a Valuable Education Plan (SAVE).