Student Loans

November 22, 2017 by Todd Murphy

7 Options To Have Your Federal Student Loan Discharged

Many people ask me: is there a way to have my student loan discharged? In most situations, it’s very difficult if not impossible to have a student loan discharged. But, below are 7 options for Federal Loan Discharge.

7 OPTIONS TO HAVE YOUR FEDERAL STUDENT LOAN DISCHARGED OR CANCELLED

Read what follows carefully: if you meet any of these conditions, you can apply to have the government cancel the remainder of your federal student loans. If you submit an application to have your student loan discharged, you must keep paying your loan until the right agency approves your application.

Also, note that canceled loans may still count as taxable income. Even though you won’t have to pay back your student loans, you might have to pay taxes on the discharged balance (see my article on income tax on cancelled debt here).

1. YOUR SCHOOL CLOSED

If your school closed while you were enrolled or shortly after you withdraw, you could qualify for student loan discharge.

You must have been enrolled during or within 120 days of the school closing. If you withdraw more than 120 days after it closes, you won’t be eligible for student loan discharge.

If the agency approves your application, it will cancel 100 percent of your Direct Loans, Federal Family Education Loans (FFEL), or Perkins Loans.

2. FILING BANKRUPTCY

Bankruptcy courts rarely discharge student loans through bankruptcy. But in extreme cases of “undue hardship,” filing a bankruptcy will wipe out some or all of your student debt. There’s no hard and fast rule for what constitutes undue hardship, but there are a few general guidelines:

You’ve made good faith efforts to pay back the loan.
If you had to pay back the loan, you couldn’t sustain a minimal standard of living.
Your financial hardship is going to continue for the foreseeable future.

3. YOU ARE TOTALLY AND PERMANENTLY DISABLED

If you’re facing a long-term disability that leaves you unable to work, you may qualify for Total and Permanent Disability Discharge (TPD). There are three ways you can qualify for TPD:

You’re a veteran with a service-related disability who can no longer work. You must submit documents from the U.S. Department of Veterans Affairs.
You receive Social Security Disability Insurance or Supplemental Security Income benefits. You must submit supporting documentation and have a disability review scheduled within the next five to seven years.
Your physician determines that you have a total and permanent disability that has lasted for at least 60 months and will last for at least another 60.

Whatever documentation you provide, it must show you’re unable to engage in gainful employment. As a result, you can’t pay back your student loans.

4. THERE WAS A FALSE CERTIFICATION OR UNAUTHORIZED PAYMENT

This student loan discharge option applies primarily to Direct Loan or FFEL Program loans. It’s offered to victims of identity theft or false certification. There are a few different ways to qualify:

Your school falsely certified you as eligible to receive loans even though you didn’t meet the requirements.
Your school signed your name on an application or promissory note without you knowing about it.
Someone took out a loan in your name (identity theft).
You trained for an occupation at school that you can’t engage in due to a physical or mental condition, your age, a criminal record, or another qualifying reason.

5. SCHOLL DID NOT PAY REFUND

If you have Direct Loans and FFEL Program loans and your school didn’t pay a refund it owed to the U.S. Department of Education or a lender, the government may give you a partial discharge in the amount your school didn’t pay.

Qualifying for this refund may require a bit of detective work on your part. Contact your school to learn about its refund policies for federal aid, and ask your loan servicer for additional information.

6. SCHOOL DEFRAUEDED YOU

Some schools, such as the for-profit chain Corinthian Colleges, have used illegal or deceptive tactics to convince students to take out loans and attend.

If you can prove a school defrauded you, you won’t have to pay back your student loans. You must prove the misleading conduct directly related to your loans or education. Documents like transcripts, enrollment agreements, emails with school officials, promotional materials, and course catalogs may all be useful in supporting your claim.

The government may put your loans into forbearance or stop collections while your application is pending when you apply for this student loan discharge option.

7. STUDENT DEATH

If the borrower dies, the family may be eligible to have a Federal student loan discharged. In this event, a family member or representative must send a death certificate or other documentation to the loan servicer. All federal student loans are discharged. Parent PLUS loans are also canceled if the borrower or the student passes away.

POSSIBLE INCOME TAXES ON DISCHARGED OR CANCELLED STUDENT LOANS

If you have your student loan discharged, it could save you thousands of dollars in debt and interest, but you may have to pay income tax on the amount of the student loan discharged or cancelled.

When the government discharges your loans, the canceled balance might be treated as taxable income by the IRS. There are exceptions to this such as insolvency. It is best to check with your tax specialist to see if you owe any income tax.

The amount of tax owed may still be significantly less than what you’d pay in student loan debt.

OTHER STUDENT LOAN FORGIVENESS AND ASSISTANCE OPTIONS

As you can see there are a number of options to have your student loan discharged, but, it’s still rare. It is more likely that you can take advantage of a student loan forgiveness and repayment assistance programs.

Look into forgiveness programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. In exchange for several years of service, you could get the remainder of your loan balance forgiven.

States and universities also offer loan repayment assistance programs, which are typically based on occupation. They often benefit people who work in critical shortage or high-needs areas. Browse student loan repayment assistance programs by state or occupation to see if any apply to you.

Also, look into income-driven repayment plans if you’re struggling to keep up with student loan payments. These income-based plans extend your repayment plans and lower your monthly payments. But be careful, adding years to your plan means you’ll pay more interest in the long run. But it could be the solution you need to avoid defaulting on your student loans.

KEEP PAYING YOUR LOANS UNTIL YOU’RE APPROVED

Remember that any application for student loan discharge or cancellation will take some time. You’ll need to track down and provide documentation to support your claim.

You’ll also have to wait for the associated agency to review your application and approve it. In the meantime, keep paying your student loans. If you pause payments and the government denies your application, you’ll have to deal with the fallout of ballooning interest.

Although these discharge programs are useful for some, there’s no guarantee you’ll qualify. Look into all avenues for managing your student loans. That way, you can take control of your debt and find the solution that works for you.

November 8, 2017 by Todd Murphy

How to do a Cost Benefit Analysis of Going to College

How to do a Cost Benefits Analysis of Going to College

Most today know that student loans are out of control. Part of the reason is students enrolling in programs with no clear plan to pay for the debt incurred. A key way to prevent being hammered with unmanageable education debt is to perform a cost-benefit analysis.

Facing facts, not all college students enter business programs. Those doing so will likely enjoy this information – others are likely to shudder. Another fact is that few High School graduates know anything about a cost-benefit analysis. This article will simplify the cost analysis so that anyone can know before enrolling what to expect financially upon graduation.

About the Cost-Benefit Analysis of Attending College

Polling data indicates that many people today do not believe that the benefits of going to college outweigh the costs. At the same time, polling data indicates that most parents want their children to attend a college or university, so there is pressure.

However, few parents and teens take the time to weight the costs against the benefits of attending college. Those who do will readily determine whether the intended program of study will be beneficial to the graduate or too costly to be of use.

The simple reason most do not perform a cost-benefit analysis is because they do now know how.

A Simple Way to Do a Cost-Benefit Analysis

Doing a cost-benefit analysis does not have to be a complicated, drawn out process. One simple way is to open a spreadsheet. Treat this much like creating a simple budget. In fact, if planning to work while in school, it helps to incorporate a budget into the analysis.

The simplest way to do this analysis is to create a column for the costs of attending one or more preferred colleges.

Add rows for Tuition for each semester attended. Learn how much tuition increases each year and adjust accordingly. Add rows for the cost of books, student housing if applicable, and any other costs which may arise.

Then add a section which considers the expected costs of loans upon graduation.

Add columns which account for the expected wages upon graduation. An excellent source for accurate information related to jobs is the Bureau of Labor Statistics. Keep in mind, however, that BLJ stats are averages – students will enter the workforce at lower than average wages.

Also, consider the role of wages locally. Do a search for job titles and the average wages in the area in which a student expects to live.

Enter the figures into the spreadsheet and a good rule of thumb is to be conservative when entering expected wages.

Drawing Conclusions from the Cost-Benefit Analysis

Once projected wages and future costs of attending college are in the spreadsheet, simple formulas subtracting costs from wages can provide an understanding needed to draw conclusions.

This is where adding a projected living budget really comes in handy. If all the costs upon graduation exceed the anticipated wages, a student may want to reconsider a few things.

Can a less expensive technical school provide the needed skills?

Can the student plan to live in a more affordable location upon graduation?

Will the wages of the planned career adequately cover the costs of attendance?

Would a different degree program better serve the needs of the graduating student?

These are important questions, but only by planning the costs and expected benefits (wages) can a student know beforehand whether the desired college and/or program will provide well enough to make it worthwhile.

A cost-benefit analysis need not be complicated, but it does need to be done.

November 8, 2017 by Todd Murphy

How Does the Federal Direct Consolidation Loan Program Help With Student Loans?

You may have heard about a program called the Federal Direct Student Loan Program. Understanding how best to use Federal student loans need not be confusing. The Federal Department of Education helps students take out loans to pay for college or university. In doing so, loans are made in two-semester segments. So, if a student completes a four-year university program, they will have several separate loans. Once the student graduates the loans come due. Having multiple loans out at once can have a detrimental impact on credit – this at a time when good credit is most important.

One viable solution to this problem is to have the several small loans consolidated. This will have an instant positive impact on the credit score and make for easier debt servicing.

What is the Federal Direct Consolidation Loan Program?

The Federal Direct Consolidation Loan Program is one of the components of the Direct Loan Program. Direct consolidation loans made under the program to provide loans to borrowers who consolidate certain federal educational loans.

What is the Direct Loan Program?

The William D. Ford Federal Direct Loan Program is the largest federal student aid provision. Under this program, the U.S. Department of Education is the lender. There are four types of Direct Loans available to students:

Direct Subsidized Loans: Made to eligible undergraduate students who demonstrate financial need. Direct Subsidized loans help cover the costs of higher education at a college or career school. Some of the education loans will fall into this category.
Direct Unsubsidized Loans: Made to eligible undergraduate, graduate, and professional students, With Unsubsidized loans the student does not have to demonstrate financial need to be eligible. Some education loans will likely be unsubsidized.
Direct PLUS Loans: Made to graduate or professional students and parents of dependent undergraduate students. Direct PLUS Loans help pay for education expenses not covered by other financial aid. Note that only graduate students or parents will incur this type of loan.
Direct Consolidation Loans: Allow combining all eligible federal student loans into a single loan with a single loan servicer. This is possible at any time, but most students will want to wait until graduation to request this.
Special Note on Consolidation: This arrangement is especially useful for education funds provided by numerous lenders.

How Does Consolidation of Federal Student Loans Help?

Six months after a student graduates from college student loans mature. At this point, payments come due. The student will likely have several small loans to service. Because they are servicing multiple loans, the amount due each month is often high.

Think of it like this. If a person has several credit cards, they will have several payments to make each month. By consolidating all the credit cards into a single loan, better terms and lower payments are possible.

Student loan payments are no different. Reduced payment amounts are possible once loan consolidation occurs. This makes for easier servicing of the loans. Note loan consolidation can only occur according to the type of loan. If a student graduates with five subsidized loans and three unsubsidized loans, the student can still consolidate. Rather than eight loans, there will be two: One for the consolidated subsidized loans and one for the consolidated unsubsidized loans. This will still have a positive effect on both credit and payment reduction. Certainly, two loans are easier to manage than eight.

September 17, 2017 by Todd Murphy

Student Loan Forgiveness Programs – are you eligible?

Everybody wants to know about Student Loan Forgiveness.

In 2010, President Barak Obama signed into law a policy of Student Loan Forgiveness. Formerly known as the Health Care and Education Reconciliation Act. The purpose of this law was to help certain indebted students recover from the burden of high education loans. Properly called the William D. Ford Direct Loan program, most people know it as Obama Student Loan Forgiveness. Who qualifies for the student loan forgiveness program and what are the eligibility requirements?

The Eligibility Requirements and Qualifications for Federal Student Loan Forgiveness.

To be clear, the Education Reconciliation Act provided a variety of relief processes for students overburdened by student debt.

One is the Public Service Loan Forgiveness program (PSLF). It was developed for students who enter public service and remain for a certain time. Because the program offered benefits retroactive to 2007, the first loans to be forgiven could start as early as 2017. Provided Congress does not scrap the program as suggested by the President in 2017, following are the eligibility requirements:

Employment with any federal, state, local, or tribal government organization
Ten years on the job
120 qualified monthly payments to service the debt
Only direct federal loans made under the William D. Ford Federal Direct Loan Program qualify (private loans do not)
Be on a repayment plan

How Certain is Student Loan Forgiveness Under the Ford Direct Program?

As mentioned, Congress may nullify the program at the behest of President Trump. If that happens, there will be no forgiveness. Outside of that, the wise former student would have their employer check with the loan servicing company periodically to ensure their organization still qualifies. If not, it may be wise to seek employment immediately with an agency which does. Of course, remaining in the position could allow someone to advance such that the increased income would offset the loss of this benefit. Consider both options.

A student can make payments directly to the loan servicer, but in many cases the loan rates are substantial. The most important element of the program is the 120 consecutive qualified payments. These, however, do not have to be the full payment as required by the lender. Many students opt for a loan repayment program which can arrange payments based on income. For many entering government service, this will reduce the payments considerably.

For example. One student went to work for a state corrections agency upon graduation. On checking with a loan repayment organization, the student learned that his wages were such that he was not required to make full payments. In fact, his payments were reduced 95%. In addition, the program consolidated the 11 student loans which had been taken out over the course of his education into two loans. This had an immediate positive impact on his credit score. Most importantly, these reduced payments are qualified payments which are low enough he can manage them on the wages he receives from his qualified state employment. Assuming the program is not stopped, in ten years he will qualify to have the balance forgiven.

Beware of Student Loan Schemes.

The student loan crisis has spawned an enormous segment of businesses promising forgiveness and protection from collections. Do not be duped. There are five things to watch for if a student debt relief company comes calling:

Upfront payments required for services
Promise of immediate forgiveness
High-pressure sales tactics
Asked to provide Private information like Federal Student ID access
Your contact info came from an ad on search engines or social media

Companies which advertise must find a way to recoup their costs. They are in business to turn a profit. But the government does not charge to consolidate student loans or arrange payment plans, so a company seeking your business using advertising is looking for a way to profit from you, perhaps to your ruin. Just be aware of these and take the necessary steps to protect yourself. If you ever have a question about your student loans or have already signed up with a loan servicing company, you can visit studentloans.gov to find out if there are problems of which you should be aware.

Resources

https://www.studentdebtrelief.us/forgiveness/obama-student-loan-forgiveness/

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

https://www.nerdwallet.com/blog/loans/student-loans/how-to-spot-student-loan-scam/

September 17, 2017 by Todd Murphy

Borrower Based Academic Year and Scheduled Academic Year

What is a Borrower Based Academic Year and How Does BBAY Differ from SAY?

Huh? All of these letters. How is anyone supposed to understand student loan applications?

Obtaining and maintaining student loans can be confusing. Students will often hear references to BBAY and SAY or, Borrower Based Academic Year and Scheduled Academic Year when loans are discussed. Because student loans comprise part of a student’s future economic standing, understanding these terms plays a role in loan disbursements. In this post, we provide a clearer understanding of the difference between BBAY and SAY. To best understand, let us start with loans based on the Scheduled Academic Year (SAY).

What is a Scheduled Academic Year (SAY)?

The academic year calendar is published by each university or college, usually in the school catalogue or other materials. The calendar shows when classes begin for each standard academic year, traditionally in the fall.

A Scheduled Academic Year (SAY) is a fixed period that begins and ends at the same time each year; it is based on this school academic calendar and is used to measure annual loan limit progression. Annual student loan limits are based on a standard two-semester period marking one academic year. Because the school year runs as fall and spring semesters, student loans under SAY are provided for the fall and spring semester. The next loan period under SAY would begin the following fall.

However, students do not always want to attend school in tidy fall/spring schedules. Because of how loans are disbursed, this creates a lending problem. The solution is the Borrower Based Academic Year or BBAY.

What is a Borrower Based Academic Year (BBAY)?

The Borrower Based Academic Year (BBAY) is a standard that may be used to measure annual loan limit progression when a student does not attend school according to the traditional calendar. Rather than having to wait until the fall semester to qualify for loans, the borrower of a Title IV education loan becomes eligible for disbursement when the next semester begins, regardless of the traditional academic calendar.

Consider the following examples:

John wants to start attending college in the spring. Because the SAY provides loans only for Fall/Spring semesters, he would have to wait several months to begin classes. If he chooses instead to use BBAY to account for his student loans, he can begin in the spring.
Mary entered school in the fall, is nearing completion of spring classes, and wants to attend school in the summer. Because SAY funding ends with the spring semester and does not replenish until the following fall semester, she must apply instead to use the BBAY loan period.
Tom only wants to attend an online school which offers classes in five-week increments. Because of the non-traditional approach, his loans will be based on the BBAY.
Jerry wants to attend a vocational college. The next class starts in March. Using the BBAY, he can begin as soon as his loans are approved.
Steve is planning to get his Master’s in Education. Grad school classes often do not follow the traditional calendar.

As these examples show, the Borrower Based Academic Year is very different from the Scheduled Academic Year. The BBAY is a tool which the Department of Education uses to account for loans provided. Under U.S. law, limits are placed on the amounts which may be loaned for student aid each year (based on two semesters). To satisfy this requirement while allowing students the flexibility needed to attend as they see fit, the BBAY was developed. Understandably, students using the SAY will require more time to graduate while those using BBAY will graduate sooner. Too, those using BBAY will accumulate student debt quicker, but ideally, they will be able to pay on it sooner as well.