Consumer Law 101 Student Loan Basics Presented by Joshua R.I. Cohen
Topics • Types of Student Loans: Federal and Private • Roles of Different Companies • Federal Student Loan Lifecycle • Deferment and Forbearance • Consequences of Default • Administrative Discharges • Fixing Default • Repayment Options • Loan Forgiveness
Types of Student Loans • Federal – a loan guaranteed (insured) by the U.S Department of Education • Private • State – a loan offered by a State agency • Available to State residents or non-residents attending schools within the State
Private Student Loans • Not guaranteed by U.S. Department of Education • Many are insured • Few if any payment options – pay or don’t pay • Enforcement is the same as any other consumer debt • Must be sued before anything can happen • Bankruptcy usually not an option (Brunner Test)
Federal Student Loan Parties • U.S. Department of Education • Oversees the industry • Lends money • Insures loans given by others (guarantors/banks) • Guarantors • Lend money prior to July 1, 2010 • Insure loans given by banks • Service loans held by Dept. of Ed. • Examples: OSLA, ECMC
Federal Student Loan Parties • Private Banks • Lent money prior to July 1, 2010 • Examples – Sallie Mae, Wells Fargo • Servicers • Send statements and accept payments • Only work on loans in good standing • Debt Collectors • Contact borrowers to secure payment • Only work on loans in default
Federal Student Loan Programs William D. FordFederal Direct Loan Program “Direct Loan” Originator = Dept of Education Only option since July 1, 2010 Federal Family Education Loan Program “FFEL(P)” Originator = Bank or Guarantor • Bank is insured by Guarantor • Guarantor is insured by Dept of Education • No longer available as of July 1, 2010
Types of Federal Student Loans • Stafford • Subsidized • Unsubsidized • PLUS • Credit matters • Parent or Graduate • Amount based on school’s budget • Perkins • Originated by school • Paid to school
Stafford Loan Limits *Subsidized loans were eliminated for graduate and professional loans beginning July 1, 2012.
Student Loan Lifecycle • Funds disbursed - no payment due while enrolled • 6 month grace period after separation from school • Enter repayment • Pick a repayment plan, try to stay current • Missed payments • Day 1 to 270 = Delinquent • After 270 days = Default • Perkins default = Day 1 • Cure loan • Pick repayment plan, try to stay current
Deferments and Forbearance Delinquency < 270 days late < Default • Deferment • In-school • Active Military Duty • Unemployment • Forbearance • Discretionary • Mandatory
Consequences of Default • Collection calls • Up to 25% collection fee!! • Tax refund intercept • Social security offset -- Includes SSDI, NOT SSI • 15% BUT must leave $750 • Wage garnishment • No lawsuit required (administrative) • 15% of disposable pay • Lawsuit
Federal Administrative Discharge • Death of borrower or student (Parent PLUS) • Total and Permanent Disability • False Certification • Student never graduated HS, never received GED, and improper entrance exam • Student could not meet State min. job requirements • ID Theft • Closed School • Unpaid Refund
Fixing Default • Settlement • By statute, collector can only offer 10% discount • Only Dept. of Ed. has authority to offer better deal • Consolidation • Similar to mortgage refinance • Process takes 30-90 days • Cannot do this if wage garnishment in place • Rehabilitation • Cleans credit of default notation • 9 monthly payments required
Repayment Plans • 10-year standard • Extended, up to 25 years, based on balance • Graduated • Extended Graduated • Income Contingent Repayment – ICR(P) • Based on income and loan balance • Income Based Repayment – IBR • Based ONLY on income • Parent PLUS loans cannot use this
Repayment Examples Assumes a 3.4% interest rate. Numbers for graduated plans are the introductory payments.
IBR Payment Chart Total Household Income Number in Household The numbers above represent the monthly total household payment due. For example, if a couple with no children has a total household income of $100,000, their monthly federal student loan payments would add up to $970. The portion each pays would be based on the ratio of their federal loan balances.
Public Service Loan Forgiveness • Qualifying employer • Government – Fed, State, Local • Non-profit – 501(c)(3) (except Religious entities) • 120 Qualifying payments • 10-year Standard, ICR, or IBR • Direct Loans only • Applying for PSLF • New form to help track progress • Save stubs and proof of payments!
Teacher Forgiveness • $17,500 • Full-time, five consecutive years, at an eligible area/school (rural/inner-city usually) • Math or science teacher in secondary school • Special education teacher in secondary or elementary • $5,000 • Above criteria in other subjects • Special forbearance during the fivequalifying years
Helping Clients • Identify the problem/goal – why is client coming to you? • Loan in default • Trying to avoid default • Needs assistance applying for discharge • Harassing collection calls • Bankruptcy information
Helping Clients • Identify the type of loan • 99% of all federal loans are listed at the National Student Loan Data System (NSLDS) • Private loan information should be supplied by collection agency, servicer, or loan holder. Credit reports can also be helpful.
Helping Clients • Identify status of loan • If in default, identify cure methods • Rehabilitation v Consolidation • If delinquent, identify time until default and methods to avoid default • Affordable repayment via IBR • Forbearance and/or deferment if in temporary financial distress(and if IBR isn’t feasible).
Helping Clients • Review all documents to clarify situation • Many debtors are unsure of what is going on • Debt collectors don’t always get story straight • Lender may hold federal and private loans • Pay attention to the problem loan
Resources • www.NSLDS.ed.gov – Federal student loan database • www.AnnualCreditReport.com – free credit reports • www.IBRinfo.org – free IBR information • www2.ed.gov/offices/OSFAP/DirectLoan/calc.html – federal loan repayment calculator • www.ombudsman.ed.gov; 877-557-2575 – Dept. of Ed. problem solver/investigation unit • www.studentloanborrowerassistance.org – NCLC site • www.TheStudentLoanLawyer.com – Joshua Cohen