Qualify faster for public service student loan forgiveness by buying back months where payments were skipped

By doug | Published: October 18, 2023

In October 2023, the Department of education has come out with a new wrinkle that may help a few borrowers who
have been waiting for Public Service Loan Forgiveness (PSLF) for their student loans. Broadly, PSLF wipes out
student loan balances for borrowers who have done full time work for a non-profit employer for a total of ten years
(that is, 120 months).

Borrowers who are getting close to the 120 month threshold may now buy back months in which they were ruled
ineligible due to a deferment or a forbearance, and qualify for immediate forgiveness.

For instance, a borrower with 118 months of qualifying service time, but whose loans were in deferment for three (3)
months during the payback period can now make a one-time payment equal to 2 loan payments and get immediate
forgiveness of the remaining balance.

Of course, as with most student loan programs, there’s oodles of paperwork and complications involved. To start with,
you need to have a Direct federal loan with a positive balance, 120 or more months of payments while certified as
working for a qualified non-profit employer (including months where no payment was made due to deferment or
forbearance, and at least one month where their was a deferment or forbearance.

BUT, you won’t qualify for this if you still fall sort of the 120 total months requirement, or have only non-direct
loans such as FFEL or Perkins loans. It may also be tough to qualify if you have already consolidated your loans;
deferment months that occurred when the original loans were in place can’t be bought back.

Also, months where you were in school, in a grace period, in default, in bankruptcy, or being monitored for a
disability claim don’t count.

If you apply for the buy back program and are accepted, the DOE will ask you to sign a buy back agreement, calculate
the amount due, and give you ninety (90) days to make the payment. Do that, and the forgivness should be automatic.

Posted in Student loans | Comments closed

Is there any way to reduce super high Parent PLUS loan payments?

By doug | Published: October 11, 2023

Paying off student loan debt can be plenty challenging enough when you are trying to finance your
own education; but parents who borrow to help put their children through school are in a whole other
league when it comes to repaying the loans.

That’s partially due to the fact that parents are usually in a different stage of life when they take
on this kind of vicarious student debt. Think about it: the parent borrower will almost always be in his or her forties when they sign up for parent loans, and with many extended repayment plans may be well past retirement age before they finish paying them off.

Adding to this, the most popular form of parent lending for education, Parent PLUS loans, have no formal maximum limit on the amount that can be borrowed, parent may feel responsible for helping multiple children, and some of those children may be seeking advanced degrees that take a decade or more to obtain. It can quickly add up to a whopping debt that, while incurred for a noble cause, overwhelms the parents just when they are eyeing retirement.

Since Parent PLUS loans are federal loans, the first instinct borrowers have is to shop around for one of the several income-based repayment plans offered by the federal government. Unfortunately, the news here is bad: Parent PLUS loans (unlike PLUS loans offered directly to graduate students) are formally barred from all these repayment plans except one.

The sole relief program that will accept Parent PLUS loans is called Income Contingent Repayment, or ICR. Unfortunately, this is one of the oldest programs out there, and requires borrowers to commit 20% of their disposable income each month to debt payment. This may be a viable option for one or two small loans, but can produce staggering payments for parents who leaned heavily on these loans for their kid’s schooling. The newest, and usually friendliest repayment plan, dubbed SAVE, formally bars parents from enrolling their PLUS loans.

But — there may be a workaround, although it requires tenacity and a daunting amount of paperwork. While Parent PLUSloans are ineligible for SAVE and other plans, “direct” federal student loans are eligible, so the trick is to turn a PLUS loan into a direct loan in order to qualify.

Enter the “double consolidation,” in which parent debtors put their PLUS debts through a series of debt consolidations to get them converted into direct loans. Here’s how it works:

Campus photographs taken by Freelancer Conor Doherty during a summer day.


First, parents need to have multiple PLUS loans. A single loan is stuck with ICR. But multiiple loans
(which should be the case if the child attended school for more than one year), can be divided into two groups of loans, each one ripe for consolidation.

Because parents can choose their loan servicer on the consolidation application, they will begin by filling out the forms and requesting the first group of loans be consolidated into one direct loan, and then
choosing a servicer such as Nelnet.

A second application is simultaneously prepared, listing the remaining PLUS loans for consolidation, and a DIFFERENT servicer is requested.

When both consolidation applications are submitted and approved, the result should be that the parent now owes on two direct federal loans, payable to two different servicers. While these loans are direct federal loans, they still carry the PLUS designation, so an additional step is needed.

You guessed it: the borrower next prepares a third consolidation application, this time asking that the two new loans be combined into one, and chooses the ultimate servicer of choice. If the parent thinks they might
be a good candidate for public service loan forgiveness based on their employment status, MOHELA should be selected.

When this last application is submitted and approved, the result should be one single direct federal loan, created from the merger of two direct loans, eliminating the Parent PLUS status, and qualifying for a lower payment under the SAVE program. At this point, the SAVE application can be downloaded, and the final single direct loan can be enrolled.

Obviously, it helps to be the type of person who just loves government bureaucracy and filling out forms to pull this off, along with a healthy dose of patience, but the end result may be worth it, as payments calculated by SAVE will tend to be much lower than those offered by ICR.

Posted in Parent PLUS | Comments closed

How do you prove your income on an income based student loan repayment plan?

By doug | Published: January 12, 2018

If you are trying to get your student loans into an
income driven repayment plan, one of the first
questions you will face is “How do I prove to
the Federal Government what my income is?

Your income, after all, is the most important factor in
what the monthly payment will be for any IDR plan.

Generally speaking, there are two ways of proving
income: current documentation, or prior tax returns.

The documentation method works just like it sounds. Along
with your application, you supply a document (typically
a pay stub for most graduates with a job), and the servicer
who processes your application uses that to calculate income

If you are sending in a tax return instead, the key
figure is your adjusted gross income. That is found
on line 37 of IRS for 1040, line 21 of form 1040A,
or line 4 of form 1040EZ.

It is worth while to remember what “adjusted gross income”
is: AGI is your total income for wages, salaries, and business profits.

To this base number is added: interest, dividends
capital gains (i.e. profits on investments), IRA distributions,
the taxable portion of social security benefits (typically this
will involve a senior citizen still working part or full time),
rental income, and unemployment checks.

Subtractions include some self employment payments
money you contribute to your IRA, alimony paid, and any
student loan interest if you have been making payments on
your loans.

Make all those additions and subtractions, and you
have your adjusted gross income.

A couple of points buried in the details: First, if you
choose to submit a tax return as proof of income,
remember that by definition, tax returns are snapshots
of what your income was at some point in the past.
If your income has been rising since you filed the return,
it’s generally better to send in your taxes. If your
income has fallen, you might be better off using current
documentation instead.

Second, if you drain your retirement accounts to pay
bills, you are screwing yourself every which way.
One of the unexpected ways is here, where your withdrawal
will be used against you to increase your IDR payment.
Avoid IRA withdrawals in the first place; when necessary,
use the current documentation method to keep the
withdrawals out of the IDR math.

Posted in Income Driven repayment plans | Comments closed

One trick for discharging student debt in bankruptcy

By doug | Published: January 12, 2018

Graduates burdened with heavy student loan debt
loads often hear how difficult it is to discharge
this debt through the bankruptcy process.

This is correct, at least to some extent. In order to
discharge student loans in bankruptcy, the debtor
must file a parallel case, called an adversary
proceeding in bankruptcy lingo, and then persuade
a judge that the student loans are causing
an exceptional “undue hardship” in their life.

But there are sometimes ways to avoid this
procedure. One is to seek a discharge for tuition
directly.

The “adversary proceeding” and “undue hardship” rules
apply to student loans. Tuition billed directly by
the school to the student isn’t a student loan – its
tution. And “tuition” isn’t subject to the
undue hardship analysis.

Directly billed tuition is more often seen in trade schools
than in colleges or universities, but in the end, if
what you have is a tuition bill, rather than a student
loan, it is relatively easy to get rid of it with
a simple chapter 7 bankruptcy case.

If you are in doubt as to whether your student debt
is a loan or a tuition bill, remember that the hallmark
of a loan is a signed promissory note. If
there’s no note, what you have is likely a straight
tuition bill, and easily dischargeable.

Posted in The Bankruptcy Code, Uncategorized | Comments closed

Administrative Wage Garnishments on Student Loan debts

By doug | Published: January 12, 2018

If you’ve fallen behind on federal student loans, and you are working at a job, administrative wage garnishment (AWG) of your earnings may be looming.

Once AWG is in the picture, there are three basic ways of dealing with it.

First, avoid it if possible. If you can prevent the garnishment from going into effect in the first place, half the battle is already won. In order to put a AWG garnishment into place, the Department of Education must first send you a 30 day warning letter by snail mail. Don’t ignore it! Action taken during the 30 days, such as negotiation with the debt collector handling your account, or requesting a hearing on the AWG, can at least buy you some breathing room.

If you are too late with the avoidance strategy, and you are already being garnished, the second option, rehabilitation of your loan is the principal escape route. Rehabilitation involves a short application, and then making five consecutive good faith monthly payments on the loan. It’s not immediate relief, but it’s a five month relief.

One trick of the trade is that the amount of the payments can be negotiated prior to entering the rehab agreement so your debt load is managable.

The third arrow in your quiver is to file a bankruptcy case. Can’t stand being garnished for five more months while rehabbing your loan? Bankruptcy terminates the AWG immediately.

Of course, bankruptcies come with a lot of extra consequences, Whether it is the right move for any given person is a case by case decision. Generally speaking, the more financial problems you have, the more attractive it becomes. So if the AWG is the biggest thing bothering you, bankruptcy may be too big a weapon for the problem. But for a person behind on a mortgage,credit cards, etc. it may indeed be the preferred solution.

Posted in Wage garnishment (AWG) | Comments closed

Why no one has qualified for Public Service Loan Forgiveness yet

By doug | Published: December 13, 2017

In October, 2017 the very first student loan borrowers became
eligible to have their balances discharged under the
Public Service Loan Forgiveness (“P.S.L.F.“) program announced
by the Department of Education.

Chances are, no one qualified.

Why?

First, it is important to realize that Public Service
Loan Forgiveness is really a pro-active program,
and not a retroactive one. No one is giving you
credit for being a teacher, for example, for the last
twenty years.

In order to get credit towards PSLF forgiveness in
ten years, there are three basic requirements, all
of which must be met.

First, you must have a qualifying employer. Any non-profit, government, or military employer counts, but you must
be working for them a minimum of 30 hours per week.
Notice that the type of job isn’t critical, but the employer’s
status is. So for example, anyone working 30 hours or
more a week for a school district, from janitor to
teacher to superintendent, can count that work toward
PSLF.

Second, you must be making payments toward your studentloans. This is why merely “being a teacher,”or being a cop”
won’t work. You need to be sending in a payment every
month. A reduced payment issued under one of the
income based repayment plans counts, but putting
your loans into determent or forbearance doesn’t count.

Third, you need to be making paymnents on the right
type of loan. The right type of loan is a consolidated
federal direct student loan, which needs to be placed
on either the standard 10 year repayment plan, or
on one of the federal income-based repayment plans
(ICR,IBR, PAYE or REPAYE, for example).

Recent graduates may just “have” the right type of loan
out-of-school, but older folks may have to apply to
“get” the right type of loan if they want PSLF.

Putting the three elements together, forgiveness happens
once you have made 120 payments toward a direct student loan on a qualified payment plan, while you are working 30 hours plus for a qualified employer.

Do all that, and your loans are forgiven. While it might
sound like a lot of hoops to jump through, PLSF is a
worthy goal to shoot for, for long term employees in
the public and non-profit sectors.

Posted in Public Service Loan Forgiveness | Comments closed

PLUS student loans are not created equal

By doug | Published: December 12, 2017

Not all PLUS loans are created equal.

Basically, there are two varieties, Parent PLUS loans, and graduate PLUS loans.

Parent PLUS loans are the older of the two. (The acronym originally stood for “Parent Loan for Undergraduate Students”). These are loans made directly by federal government to parents of undergraduate students.

Graduate PLUS loans are made directly by Uncle Sam to graduate students (who are typically young adults of legal age).

Despite the similar names, there are key differences between the two.

When a child finishes with undergraduate studies, make no mistake, it is the parent who gets the Parent PLUS loan bill. The student is never obligated to contribute to paying off this debt. It’s nice if they say they are going to try, but that “promise” is unenforceable. Also, there are never any co-signers on a Parent PLUS loan. If you are talking about a loan co-signed by a student and her parent, 99% of the time it is a private loan, not a PLUS loan.

Graduate PLUS loans, on the other hand, are the responsibility of the student once her education is completed. Again, there are no co-signers, and the parent has no legal responsibility to help out.

When it comes to income based repayment plans there is a critical difference between the two types of PLUS loans: The Parent PLUS variety is eligible for only one of the repayment programs, and that is Income Contingent Repayment (ICR). ICR is the oldest and least flexible of the plans, and usually has the highest monthly payments. But at least there is a little help.

Graduate PLUS loans, however, are eligible for the whole plate of relief offered by Uncle Sam.

So, for instance, graduate PLUS loan can go in to the new REPAYE program, where the monthly payment is based on only 10% of adjusted gross income, and loan forgiveness is available after 20 years.

Posted in Graduate PLUS, Parent PLUS | Comments closed

Massachusetts debtor discharges law school loans in bankruptcy case

By doug | Published: February 7, 2014

ivy leagueStudent loans are impossible to discharge in bankruptcy, right?

So goes a lot of street wisdom, but take a look at what actually happened in court in Massachusetts in January, 2014.

A disbarred lawyer with criminal convictions stemming from some wild incidents in his law practice (he was tossed from the bar after a mere five months) was able to secure a determination of undue hardship from bankruptcy judge Joan Feeney, and get all his law school student loans wiped out.

You may or may not want to trade places with this particular debtor, whose tale is told in the Ablavsky case, who put himself through college and law school, but who struggled all his life with crippling mental health problems, and had criminal convictions from some escapades when he was in manic states.

Although all those bad facts were thrown back at him at his trial, this debtor was able to persevere and all of his school loans were erased in bankruptcy on the grounds of undue hardship.

One of the more interesting facts hidden in this opinion is that four lenders named as defendants didn’t even answer the charge, and so were defaulted by the judge. That wiped out over $109,000 in supposedly non-dischargable student debt automatically, without a fight.

Sometimes, when crushing student loan debt is involved, it’s worth the gamble of going to bankruptcy court.

by Doug Beaton

Posted in Student loans | Comments closed

More options for debtors buried in private student loans?

By doug | Published: January 22, 2014

wingsGetting out from under a load of privately held student loans is no easy trick, even in bankruptcy court.

Debtors may have a new weapon soon, however, as the idea of re-financing these loans at lower rates is just getting started.

According to Sheryl Harris in the Cleveland Plain Dealer, Charter One Bank in Ohio ha joined a small group of lenders willing to take a chance on these kinds of loans. Ms. Harris reports Charter One is offering graduate debtors either a 5.24% fixed rate or a variable rate that is currently about 3% to refinance.

No word on whether anything like this will be available in Massachusetts, but according to Harris, “as a result of steady pressure from the Consumer Financial Protection Board, college graduates can expect to see other banks and credit unions roll these products out.”

By Doug Beaton

(Artwork by Cleveland Plain Dealer)

Posted in Student loans | Comments closed

Enormous growing problem with student loans next bubble to explode — or will it boomerang back to bankruptcy court?

By doug | Published: April 13, 2012

Over the Easter weekend, a lot was written about the massive growing problem of student loan defaults — which some commentators think might soon approach the problems associated with the recent real estate crash.

In an Associated Press article, William Brewer, president of the National Association of Consumer Bankruptcy Attorneys, “This could very well be the next debt bomb for the U.S. economy.”

“As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer said. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.”

And if you think it’s just students saddled with these loans, think again. Increasingly, parents and even grandparents have been twisted into co-signing the loans, meaning student loan debt, of all things, is becoming another problem of the elderly!
People over sixty collectively owe over $36 Billion dollars for their offspring’s education.

Currently, student loans are difficult to discharge in bankruptcy court, requiring the debtor to bring (and win) a lawsuit in addition to the regular case.

But if the bubble bursts, that may be changing. Lat year, legislation was introduced in Congress to ease up these requirements. In the current election year dynamic, it probably doesn’t have much chance — unless the problem really does grow as big as the housing crisis.

 

By Doug Beaton

Posted in Student loans | Comments closed
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