Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Sunday, April 10, 2016

ANOTHER STEP IN DISCHARGING YOUR STUDENT LOAN

LOOKING AT OPTIONS - WILL A REPAYMENT PLAN WORK FOR YOU?


I thought I would continue to present some more steps I found to be required to be successful in discharging your student loan. My successful discharge of my 27-year old student loan debt of $130,000.00 has been described by my friends as a “miracle”, and in some ways it was. But like any miracle of biblical proportions it took a leap of faith and required the person to do something and act on that faith.

Like I mentioned last time, the first step is actually coming to the conclusion you are in a desperate financial situation, and find yourself unable to ever be able to see a way out. When you determine that your situation looks hopeless like I did, and you have tried some of the options available from the lending and loan servicing agencies and still are unable to see how to resolve your Federal Student Loan situation, you may be able to prove “undue hardship”.

Proving undue hardship was my way out from under my debt to the Department of Education (DOE), where all of my loans had been consolidated and had fallen into default and my small incomes from Social Security and a even smaller civil service retirement that were both being garnished to the tune of nearly $300.00 a month. That monthly offset was taken out each month leaving me only $1,200.00 to live on. The ridiculous part is – that $300 was not even covering the interest required on that $130K debt! Is that crazy? Yes!

The loan balance was growing everyday. The interest was accruing daily. It was never going to stop, and unless I won the lottery I was never going to pay off that debt. The fact is there are over 160,000 people who are having their social security checks garnished to pay on their student loans. Even younger debtors are having their wages garnished.

If you find yourself unable to fend off the collection agencies who call every day and night, and have run out of options, then perhaps proving undue hardship will not be as hard as you think? I did it, and while I was unsure if I would be successful, the fact is I did win in court, and it was a miracle of sorts. I am here to encourage you towards your miracle.

In my April 2nd blog “FIRST 5 STEPS TO DISCHARGING YOUR STUDENT LOAN” I discussed some of the things I discovered and acted upon. Here are those first steps in list form:

#1) Are you in a similar situation? If so, the 1st thing to do is take stock of your loan situation and what is going on with your loans.

#2) Learn everything you can – including other options on how to work with lenders or the DOE. Loan forgiveness programs may be an option – but read the fine print! Not everyone is eligible for Loan Forgiveness. True loan forgiveness programs are limited! Many are scams!

#3) Disability may qualify for forgiveness of your Federal Student Loan – but again, you need to meet all the qualifications and know what the legal interpretation is. Beware because even if you qualify for a TPD (Total Permanent Disability) discharge you may end up paying income tax on the amount discharged – the same Tax penalty also applies to loan forgiveness!

#4) Get to know what constitutes “Undue Hardship”. I successfully discharged ALL of my debt under this provision – I had tried several other options. I had no way out – bankruptcy was my last resort – but it also was the answer to my financial situation. My story is posted here:

#5) Learn to be your own attorney – You can do it! Besides if you are in financial crisis, you probably have no money for a $600.00 per hour lawyer. Even if they would take your case, you are statistically better off without one according to this Steve Rhode article: http://www.huffingtonpost.com/steve-rhode/bankruptcy-student-loans_b_2416031.html


ADDITIONAL STEPS FOR DISCHARGING STUDENT LOANS....


As I talked about in my last post, you really need to research and learn EVERYTHING about available options to becoming free from your student loan debt if you are drowning in debt. If you have a well-paying job and you are living pretty good, chances are you will not be considered by the DOE or other lenders for loan forgiveness, or discharge.

If you are thinking you can just avoid paying those loans, you are fooling yourself! The lender does not stop the charges just because you ignore them. Student loans do not get “written off” like that overdue bill to the Doctor's office. Student loan debt is life long debt!

My loan grew from the original amount of $55K to $130K. In spite of actually paying off a loan or two, and paying nearly 1/3 of the debt off, I could never keep up the payments that were required due to under-employment, minimum wage jobs, and ending up on disability (SSDI).

When I fell behind, I requested forbearance's, and deferments. I worked with lenders as best I could, and also agreed with the DOE to consolidate my loans – which changed the re-payment period from 10 to 30 years! After being on disability for nearly seven years my loan was suddenly declared in default and due in full. Social security switched me over to regular age-based annuity payments – I was no longer under a disability deferment. That is when both my retirement annuity deposits began to be garnished by the DOE.

SIX – A REPAYMENT PLAN?


When you signed for your federal student loans the school financial aid office probably gave you a lot of information in a short period of time. At the time all I cared about was being told I qualified and could register for classes. And if you step back and take a look, it is pretty obvious that the college was doing all they could to get me to enroll. The folks in financial aid do not provide you with statistics about the future job market for your career field, nor do they provide much financial counseling.

As my good friend Richard Fossey blogged this week on his web site, Condemned to Debt,Colleges and universities have an incentive to maximize their revenues, which means luring tuition-paying students through the door. “

Richard Fossey's article is worth a read and I am providing a link to it below. The article is a op-ed about the new Secretary of Education, John King's espousal of a report by the Financial Literacy and Educational Counsel which “emphasizes the role that colleges and universities can play in enhancing their students' ability to make good decisions about financing their college experiences.” Secretary King seems to believe that by providing college students with financial literacy courses, students will have more incentive to pay back their loans, but as Fossey says: “higher education institutions have zero incentive to warn potential students that some of their degree programs are a bad financial investment.”

Perhaps I am cynical but as the DOE looks for answers to appease their congressional overlords, touting financial literacy courses as the solution to the nearly $1.4 trillion dollar in outstanding student loans is ridiculous! And telling colleges to provide these courses is about 100 years too late! The government overlords should have started this generations ago, and not after enrollment but probably in High School?

Now due to the student loan crisis, the DOE has tried a variety of things to appease those pundits demanding something be done to hide the facts about the student loan crisis. While I may be wrong, I think the DOE has spent a great deal of time and money trying to deflect (and intentionally deceiving) those pundits by creating re-payment schemes, putting students into long-term loan repayment plans with the sole purpose of not allowing loans to fall into default.

Let's take a look at just a couple of these so-called re-payment plans.... 


The Department of Education (DOE) offers several payment plans. The DOE maintains several websites. One of those websites Federal Student Aid (FSA), and per their own “about us” drop down, they are a “part of the Department of Education” and “responsible for managing the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965. These programs provide grants, loans, and work-study funds to students attending college or career school. (see the link below)

Under the FSA's drop down “How to Repay Your Loans” is where they describe all of the repayment plans. Click here to take a look at this page: https://studentaid.ed.gov/sa/repay-loans/understand/plans. On the right side of the page, FSA has “quick links” to their (5) categories of repayment options. https://studentaid.ed.gov

Those include: the “Standard Plan”; “Extended Plan”; “Graduated Plan”; “Income-Driven Plans”; and “Income-Sensitive Plans”. My suggestion is to become familiar with each one of these plans, some of which have some stringent criteria and rules.

In my situation I had agreed to consolidate my loans. While all the repayment plans provide options to include allowing consolidation, not every type of loan may be eligible for consolidation. Thus, read and re-read the fine print of each of these repayment plans. My step number six (6) then is:

#6) Explore all of the so-called re-payment options and plans for your student loans. One website I suggest is: https://studentaid.ed.gov/sa/repay-loans/understand/plans

In my own situation, I was called by someone representing the DOE who convinced me to consolidate my loans which at the time was close to $48K. If I recall correctly it was in 2001
and the consolidation extended my payments from a 10-year payback to 30 years! In 2001.
I was 53 years old, which meant the loan would be paid off when I reached 83 years of age! And if I remember right, the payments were going to be about $480.00 a month!

At the time I was employed, but soon after lost my $58,000.00 a year job, lost a house to foreclosure, and got divorced for the 2nd time, and within a few months became disabled and began receiving SSDI.

Repaying nearly $500.00 a month was not possible. With my disability status my loan was put into deferment, I was not required to make payments. As I had written previously once I reached full retirement age, the DOE came after me for the debt. Which had grown from the $48,000 to $78,000 then grew to a whopping $130,000 by the time I decided to file my 3rd life-time bankruptcy and file an adversary proceeding to prove undue hardship.

Let me finish up this about repayment plans with a word of caution and warning.... 


Read the details of each plan very carefully, know what it will cost you! Every plan has to be examined because each plan applies to certain loans, has differing pay-back periods and interest rates and may not fit your particular situation. Lastly, BEWARE! Most of the so-called forgiveness plans may promise that the loan will be discharged after so many payments or years, but not only can you not “skip” a payment but you may owe taxes on the amount forgiven! And that tax bill could be huge.

I have read where some people have been told that due to their poverty situation, they can make zero dollar payments, and after 25 years the loan is forgiven, but in reality those same zero-paying folks end up owing hundreds of thousands of dollars in taxes on the amount forgiven. So at the time these folks are in retirement, they are going to be hit with a huge capital gains tax bill, which will wipe out all of their retirement and or savings and probably take everything they own? Welcome to loan forgiveness?

OK I had intended to provide a few more steps this week, I will leave you with one for now, and pick this up again next week. There is a lot to look into regarding repayment of your student loans, and all of that should be researched before you make a decision to file bankruptcy. So let me stop here for now and encourage you to continue to follow me and please do not hesitate to comment or ask questions. I appreciate all feedback. You can get notified of my latest musings and articles by using the email link at the top right of this page.

God Bless! Richard

Further suggested articles about re-payment: 




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