Consumer Law 101 Student Loan Basics Presented by
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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) Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
Federal Student Loan Programs Federal Family Education Loan Program “FFEL(P)” William D. Ford Federal Direct Loan Program “Direct Loan” Originator = Bank or Guarantor • Bank is insured by Guarantor • Guarantor is insured by Dept of Education • No longer available as of July 1, 2010 Originator = Dept of Education Only option since July 1, 2010 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
Stafford Loan Limits Subsidized Max Dependent Max Independent Max First Year $3, 500 $5, 500 $9, 500 Second Year $4, 500 $6, 500 $10, 500 Third and Subsequent $5, 500 $7, 500 $12, 500 Undergrad Cumulative Max $23, 000 $31, 000 $57, 500 Graduate $8, 500* $20, 500 Graduate Cumulative Max $65, 000 $138, 000 *Subsidized loans were eliminated for graduate and professional loans beginning July 1, 2012. Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
Deferments and Forbearance Delinquency < 270 days late < Default • Deferment – In-school – Active Military Duty – Unemployment • Forbearance – Discretionary – Mandatory Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 • • • Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
Repayment Examples Original Loan Amount $25, 000 $50, 000 $75, 000 $100, 000 150, 000 $200, 000 10 -Year Standard $246 $492 $738 $984 $1, 476 $1, 968 Extended N/A $248 $371 $495 $743 $991 Extended Graduated N/A $142 $213 $283 $425 $567 Graduated $159 $318 $477 $636 $954 $1, 272 Assumes a 3. 4% interest rate. Numbers for graduated plans are the introductory payments. Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
IBR Payment Chart Number in Household Total Household Income $25, 000 $50, 000 $75, 000 $100, 000 150, 000 $200, 000 1 $50 $420 $730 $1, 050 $1, 670 $2, 300 2 $0 $350 $660 $970 $1, 600 $2, 220 3 $0 $280 $590 $900 $1, 530 $2, 150 4 $0 $210 $520 $830 $1, 460 $2, 080 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. Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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! Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 five qualifying years Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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. Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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). Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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 Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
Resources www. NSLDS. ed. gov – Federal student loan database www. Annual. Credit. Report. com – free credit reports www. IBRinfo. org – free IBR information www 2. ed. gov/offices/OSFAP/Direct. Loan/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. The. Student. Loan. Lawyer. com – Joshua Cohen • • Copyright 2010 -2012 Joshua RI Cohen - The Student Loan Lawyer
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