The Student Loan Crisis: Part I

The Student Loan Crisis: Part I

There are currently 44 million student loan borrowers.  The total student loan debt has more than doubled in the last decade.  Student loan borrowers owe approximately $1.5 trillion student loan debt.  Student loan debt exceeds both automobile loans and credit card debt.

Student loan debt burdens both young and old.  $250 billion in student loan debt is owed by borrowers 50 years old or older.  And 70% of 2019 graduate owe an average of $30,000 in student loans.

Only 60% of student loan borrowers are in active repayment.  11% of student loan borrowers in default.

SOCIETAL IMPACT OF STUDENT LOANS

Student loan debt negatively impacts society.  Student loan borrowers wait longer to make large purchases like vehicles and homes.  As such, there is a lower level of homeownership among student loan borrowers.  They also tend to wait to get married.  Student loan borrowers are less likely to continue their education by pursuing a graduate school degree.  They are also less likely to pursue public service jobs.  Not surprisingly student loan borrowers experience higher levels of household financial distress. 

CARES ACT RELIEF FOR FEDERAL STUDENT LOAN BORROWERS

The CARES Act was enacted March 27, 2020.  The CARES Act provides relief in a number of ways: stimulus checks, eviction and mortgage moratoriums, and mortgage forbearance.  The CARES Act also provides relief to Federal student loan borrowers. 

AUTOMATIC FORBEARANCE

All Federal student loan borrowers were placed in an administrative forbearance.  Federal student loan payments are suspended through September 30, 2020.  This payment forbearance is AUTOMATIC.  The student loan borrower does not have to request the forbearance.  The President has extended the forbearance through December 31, 2020, by Executive Order.

The administrative forbearance applies to government loans whether current or in default.  The following are common Federal government loans:

  • DIRECT Loans
  • FFEL Loans
  • Federal Perkins Loans
  • HEAL Loans

You may go to www.studentaid.gov/login to check whether your DIRECT or FFEL loan is owned by the Department of Education; and, therefore, automatically in forbearance.  Please note the automatic forbearance does NOT APPLY to private student loans.  You will need to contact your private student loan company about any forbearance options available due to COVID-19.

INTEREST DURING FORBEARANCE

No interest accrues on your Federal student loans during the forbearance!

IDR PROGRAMS and PUBLIC SERVICE LOAN FORGIVENESS

Student loan borrowers participating in Income Driven Repayment programs are also placed in automatic forbearance.  The suspended payments count towards the IDR’s total payments.  Similarly, student loan borrowers participating in Public Service Loan Forgiveness program are placed in automatic forbearance.  Further, the suspended payments count towards the 120 monthly payments required under such program.

OPT OUT OF AUTOMATIC FORBEARANCE

You may opt out of the automatic forbearance.  Any payments, full or partial, made during the forbearance period apply to principle!  As such, you can pay down your loans during the forbearance period.

NON-BANKRUPTCY DISCHARGE OF STUDENT LOAN DEBT

You may discharge Federal Student Loans without filing a Bankruptcy case under certain circumstances.  The following non-Bankruptcy discharges result in cancellation of Federal student loan debt.

TOTAL AND PERMANENT DISABILITY (TPD)

  • Student loan borrower whom is unable to engage in any substantial gainful activity for 60 months. 
  • Requirements for TPD
    • Physician certifies that the borrower meets the qualifications.
    • Certification with a Social Security Award Letter (if the letter states that next review is in 5-7 years).
    • Or, Department of Education notifies the borrower of eligibility.
  • All applications for TPD are processed by the same servicer (Nelnet); therefore, ensuring consistency in application and processing.
  • There is a 3-year monitoring period.
    • You must respond to inquiries during or at the end of the monitoring period in order to keep the cancellation of student loan debt.

PUBLIC SERVICE LOAN FORGIVENESS

  • Applies only to DIRECT Loans.
    • FFELP loans may be consolidated in order to satisfy this requirement.
  • Requirements
    • Must not be in default.
    • Make 120 monthly payments.
    • Employed in public service while making said payments.
      • Public service includes most local, state, federal, tribal government organizations or Section 501(c)(3) corporations.
  • If you make 10 years of payments, then the student loan balance is forgiven!
    • The forgiven student loan balance is NOT taxable.

CLOSED SCHOOL DISCHARGE

  • The school closed before the borrower could complete the program of study AND there was no “teach-out” – opportunity to finish the program at another school.

FALSE CERTIFICATION DISCHARGE

  • False certification that student will benefit from Education.
  • False certification that student will qualify for Employment.
  • Or Identity Theft – very difficult standard to satisfy. 

DEATH DISCHARGE

  • Student loan debt dies with the borrower.
    • Student loan does not have any claim against the deceased’s estate.
    • Must supply the Death Certificate.

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