New Updates to Student Loan Forgiveness

White piggy bank with a graduation cap resting on top of a binder of paperwork

Student debt can be overwhelming. If you have a high balance or have been making payments for years, then it may feel like your loans will never come to an end. Recently, the US Department of Education made updates to its policies that will make it easier for individuals to overcome their student loan debt.

Some of the largest changes to their policies will make loan forgiveness more accessible to individuals on an Income-Driven Repayment Plan, which could offer relief to thousands of students across the country. To take advantage of these new updates to student loan forgiveness, it’s important to understand how they work and who qualifies.

What Is an Income-Driven Repayment Plan?

Income-driven repayment (IDR) plans are designed to help individuals who have student loan payments that are disproportionately high compared to their income. These plans calculate your required payments based on how much you earn annually rather than how much you owe. As a result, your payments could be lower and much more affordable than standard repayment options. Consumers may qualify for one of these four types of IDR plans:

  • Pay As You Earn (PAYE): Takes monthly payments at 10% of your discretionary income without exceeding what you would normally pay with a Standard Repayment Plan.
  • Revised Pay As You Earn (REPAYE): Takes monthly payments at 10% of your discretionary income.
  • Income-Based Repayment (IBR): Takes monthly payments at 10-15% of your discretionary income based on what you borrow, without exceeding what you would normally pay on a 10-year standard repayment plan.
  • Income-Contingent Repayment (ICR): Takes monthly payments at 20% of your discretionary income, or the amount you would pay over a 12-year fixed payment plan – whichever is less.

Problems with IDR and Student Loan Forgiveness

Most individuals on an IDR can qualify for student loan forgiveness after making consistent payments over 20-25 years. However, there are some challenges associated with IDR plans that could block consumers from having their loans forgiven, even if they qualify. The two main obstacles to having your loans forgiven on an IDR plan are:

  • Progress tracking: To have your student loans forgiven, you must make a certain amount of qualifying payments over the course of 20 to 25 years. One of the largest challenges associated with IDR and student loan forgiveness is progress tracking. Lack of documentation makes it difficult or impossible for consumers to tell when student loans are due to be forgiven.
  • Forbearance steering: IDR plans and student loan forgiveness can be hugely beneficial to consumers, but they are not ideal for loan providers. For this reason, many servicers broke the Education Department’s rules by pushing consumers toward forbearance – or payment pauses – rather than educating them about IDR options. These pauses are not a long-term solution and can allow your balance to grow even more. Not only that, but they also do not count toward student loan forgiveness requirements.

Updates to Student Loan Forgiveness Policies

The Education Department recognizes the issues associated with IDR plans and loan forgiveness. For this reason, it recently announced policy changes that will make student loan forgiveness more accessible to borrowers. These policy updates include:

  • Counting certain long-term forbearances toward IDR forgiveness: To account for previous instances of forbearance steering, the Education Department will make a one-time adjustment to retroactively count long-term forbearances toward forgiveness. This will include a 12-month limit for a single stretch of forbearance, and a 36-month limit for cumulative pauses.
  • Increasing oversight on service providers’ use of forbearance: In order to prevent future forbearance steering, the Education Department will work with the Consumer Financial Protection Bureau to monitor and regularly audit each loan provider’s use of forbearance.
  • Performing a one-time revision of IDR payments to remedy inaccuracies: Past documentation inaccuracies could prevent qualifying consumers from having their loans forgiven. To remedy these previous mistakes, the Federal Student Aid (FSA) will perform a one-time revision that will retroactively count any months in which borrowers made payments toward IDR.
  • Upheaving the IDR tracking system for better documentation: To permanently fix the IDR payment counting system and prevent future mistakes, the Federal Student Aid office (FSA) will begin displaying IDR payment counts on each consumer’s Student Aid account. This will simplify the counting and tracking process, while showing consumers exactly how close they are to loan forgiveness.

Do FFELP Loans Qualify?

Federal Family Education Loan Program (FFELP) student loans are privately owned but federally backed. Most loans taken out prior to 2010 are FFELP loans, though your service provider can help you determine which type of loan you have if you aren’t certain.

Though FFELP loans can benefit from these updates to student loan forgiveness, consumers must apply to consolidate any commercially held loans into a Direct Loan to qualify. If you want to take advantage of the new IDR fixes, you need to apply for loan consolidation by January 1, 2023.

Get Help With Your Student Debt

If you’re struggling with student debt, now is the time to take action! While it may feel intimidating to navigate all of the Education Department’s student loan policies, you don’t have to manage it all on your own. At OlsenDaines, it’s our goal to help eliminate the stress of debt so you can regain control over your finances. With over 40 years of experience serving Oregon residents, our debt relief attorneys know the intricacies of local and federal laws. We know what it takes to help you get the best outcomes possible, so you can get one step closer to a life without debt. To get help with debt relief, schedule your free legal consultation today!

What Debts Do You Still Owe After Bankruptcy?

Filing for Chapter 7 bankruptcy is a way for people overwhelmed with debt to get a fresh start on their finances. A debt discharge under Chapter 7 releases the debtor from personal liability for most debts. However, there are some debts that do not fall into this category. Depending on the circumstances, there are some bills that you must (or should) continue to pay.

The basic Chapter 7 timeline is as follows:

  • Mandatory credit counseling
  • Filing of papers to begin the bankruptcy process
  • Creditors’ meeting held about a month after the papers are filed
  • Mandatory budge counseling within 60 days of the creditors’ meeting
  • 60 days after the creditors’ meeting the court will send a written discharge of your debts

For most debtors the discharge order wiping out debts will be entered automatically. Once the discharge has occurred, creditors cannot initiate or continue any actions against the debtor to collect a discharged debt. This includes telephone calls, letters, and any other personal contact.

The following debts may not be discharged under Chapter 7:

  • Alimony and child support
  • Educational loans made or guaranteed by the government
  • Debts for willful or malicious injuries to another person or another person’s property
  • Debts involving death or personal injury resulting from the debtor’s operation of a motor vehicle while intoxicated
  • Debts for certain criminal restitution orders
  • Debts the debtor did not set forth in the bankruptcy filings to the court
  • Debts owed to certain tax-advantaged retirement plans
  • Debts for certain condominium or cooperative housing fees

It’s worth noting that the debt discharge under a Chapter 13 bankruptcy is slightly broader than Chapter 7. The following debts may be dischargeable under Chapter 13, but not Chapter 7:

  • Debts for willful or malicious injury to property
  • Debts involving property settlements in divorce or separation proceedings

If you would like to discuss your situation with one of our licensed bankruptcy attorneys, our doors are wide open. We offer free consultations to people throughout the state of Oregon, and we also have offices in Vancouver, and Tri-Cities in Washington. To schedule an appointment, send us a message through our contact page.

 

Reaffirmation of Debts: What, When, and Why

Reaffirmation is a way to keep certain assets during a bankruptcy that you might otherwise have to forfeit.  A Chapter 7 discharge will wipe out your personal liability for dischargeable debts (including mortgages and auto loans). However, if you are current on the monthly payments and want to keep the item the creditors will routinely forward a new agreement with the original terms (or sometimes even slightly better terms) for you to sign thus reaffirming those terms in a new contract.

When you finance the purchase of a home or a car the lender will have a lien on the house or car (it is their collateral for the loan).  Under a Chapter 7 debt discharge scenario, the lien remains attached to the collateral, and the creditor will still have the right to foreclose or repossess if you don’t make your payments. Debts like these (where your property can be held until the loan is repaid) are called secured debts.

When you reaffirm a secured debt, you are in essence signing a new agreement that reaffirms your personal liability on the loan. In other words, you are signing away your discharge rights on the debt you are reaffirming. This is a serious commitment and one that you should consider carefully. It is advisable to consult with your bankruptcy attorney before taking this step. Keep in mind that a reaffirmation agreement must be filed within 60 days after the meeting with the bankruptcy trustee.

Here are some reasons why you might want to reaffirm a debt:

  • Rebuild your credit. When you reaffirm a debt, your payments on that loan will continue to be reported to the credit reporting agencies by the lender; this will aid you in the credit rebuilding process.
  • Opportunity to renegotiate with lender for more favorable loan terms since the reaffirmation constitutes a new contract.
  • Prevent repossession or foreclosure when you want to continue making payments on the loan.

5 Advantages to Filing for Bankruptcy

Declaring bankruptcy is a means and a right to get a fresh financial start. It allows individuals or businesses to resolve financial issues, rebuild credit, put a stop to aggressive debt collecting actions, and discharge certain kinds of debt that have become unmanageable. Here are 5 advantages to declaring bankruptcy.

  1. Address missed payments, defaults, repossessions, and lawsuits that are keeping your credit score down. While bankruptcy will also hurt your credit score, it is often an easier and quicker way to rebuild your credit score than to try and deal with each creditor individually over a number of years.
  2. Put a stop to creditors’ aggressive debt collecting practices like harassing phone calls, dunning letters, repossessions, and declined transactions. Even in the case of student loans, which are not dischargeable, at least you can prevent future aggressive collecting actions.
  3. You’re wiping the slate clean. The opportunity to get a fresh financial start should not be underestimated. While bankruptcy can have its own stresses, there is a great deal of peace of mind and relief to be gained from declaring bankruptcy. And keep in mind that you will probably end up keeping all of your personal possessions, either because of exemptions or lack of interest from creditors.
  4. While being in a disastrous financial situation often becomes all too public, bankruptcy is something you can keep fairly private. Friends, co-workers, and even your family do not have to know that you have filed for bankruptcy (unless you owe them money as well). The only time your bankruptcy will show up is on a credit history report, and as stated above, that can sometimes make a better statement to a lender than being stuck in a financial quagmire. And even if your employer was to find out, it is illegal under bankruptcy laws for an employer to discriminate based on bankruptcy.
  5. Debt discharge. This is an obvious one, but it’s huge. All of the (unsecured) debt that has been making your life miserable will disappear.