Federal Student Loan Repayments to Resume
As part of the federal government debt limit agreement, the nationwide federal student loan repayment pause is ending, which will also restart interest accumulating starting in October 2023. Private student loans were not paused as part of the program initiated by former President Trump in 2020 in response to the Covid-19 pandemic, which program President Biden had extended. The Department of Education (“DOE”) has indicated that all borrowers will receive written notice of the of their payment details at least 21 days prior to the first payment, including the interest rate, amount due and payment due date. It is expected that the payments will ‘ramp up’ over a year, so that borrowers of federally guaranteed loans will not have to make the full monthly payment right away.
DOE has set up a website to assist borrowers with repayment options once the Covid-19 pause ends. COVID-19 Emergency Relief and Federal Student Aid | Federal Student Aid Borrowers are still eligible for income driven repayment plans, of which there are different varieties and offer lower payments over longer terms – these are outlined on the following DOE website: Repayment Plans | Federal Student Aid
The Supreme Court recently ruled against the proposed loan forgiveness enacted by President Biden. That program, which was to be authorized via executive action without Congressional approval, was found to exceed the authority of the President. There is still the opportunity for federal student loan forgiveness, cancellation or discharge through a number of different programs that are not subject to any pending litigation and are open for application today. These options are explained at the following DOE website: Student Loan Forgiveness | Federal Student Aid
It is also important to note that bankruptcy is a possible way to discharge student loans, regardless of what you may have heard. The Department of Justice in conjunction with DOE has recently promulgated a revised method of analyzing eligibility for total or partial discharge of federally guaranteed student loans. Those new guidelines can be found at the following website: Student Loan Discharge Guidance -- Fact Sheet (justice.gov)
In order to discharge most student loans in bankruptcy, you ordinarily must bring an additional lawsuit called an ‘adversary proceeding’ (“AP”) to prove that the repayment would be an undue hardship. Although that is a high standard to prove, there is an important distinction between federally guaranteed student loans and private student loans. Some types of private student loans are discharged in bankruptcy without having to file an AP – these are generally:
- Loans where the loan amount was higher than the cost of attendance - usually when a loan is paid directly to a student and does not go through the school or is not used to pay the school.
- Loans to pay for education at places that are not eligible for Title IV funding such as unaccredited colleges, a school in a foreign country, or unaccredited training and trade certificate programs.
- Loans made to cover fees and living expenses incurred while studying for the bar exam or other professional exams.
- Loans made to cover fees, living expenses, and moving costs associated with medical or dental residency.
- Loans to a student attending school less than half-time.
Mikal Krueger an attorney in Western New York for real estate and bankruptcy and workout matters. He has been a presenter at the Annual WNY Bankruptcy Conference including this year’s conference. If you would like to schedule a consultation with Mikal J. Kruger, please contact him at email@example.com or 585-512-3546.
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