student loan basics

Presented by Joshua R.I. Cohen

Student Loan BasicsConsumer Law 101

Copyright 2010-2012 Joshua RI Cohen - The Student Loan Lawyer

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


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


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)


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


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


Federal Student Loan ProgramsFederal Family Education Loan

Program“FFEL(P)”

Originator = Bank or Guarantor• Bank is insured by

Guarantor• Guarantor is insured by

Dept of Education• No longer available as of

July 1, 2010

William D. FordFederal Direct Loan Program

“Direct Loan”

Originator = Dept of EducationOnly option since July 1, 2010


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


Stafford Loan LimitsSubsidized 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 $20,500

Graduate Cumulative Max $65,000 $138,000 $138,000

*Subsidized loans were eliminated for graduate and professional loans beginning July 1, 2012.


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


Deferments and Forbearance

Delinquency < 270 days late < Default• Deferment

– In-school– Active Military Duty– Unemployment

• Forbearance– Discretionary– Mandatory


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


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


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


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


Repayment ExamplesOriginal 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 $991Extended 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.


IBR Payment Chart

Number in Household

$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.

Total Household Income


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!


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 fivequalifying years


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


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.


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).


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


Resources• www.NSLDS.ed.gov – Federal student loan database• www.AnnualCreditReport.com – free credit reports• www.IBRinfo.org – free IBR information• www2.ed.gov/offices/OSFAP/DirectLoan/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.TheStudentLoanLawyer.com – Joshua Cohen

http://www.nslds.ed.gov/

http://www.annualcreditreport.com/

http://www.ibrinfo.org/

http://www.ombudsman.ed.gov/

http://www.ombudsman.ed.gov/

http://www.studentloanborrowerassistance.org/

http://www.thestudentloanlawyer.com/

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