Consumer Bankruptcy Journal Summer 2015 - Page 44

NON-BANKRUPTCY OPTIONS FOR STUDENT LOAN DEBTORS By Jay Fleischman Shaev and Fleischman W e’ve all had it happen - a client comes to you for help with his or her debt problems. laws are ever changed to provide for discharge of student loan debt in bankruptcy, consider these options. We listen as they detail their financial hardships, confident that we can help. Options For Federal Loan Repayment That is, until they drop a financial atomic bomb at our feet. The dreaded student loan. In spite of our best intentions, there’s nothing we can do because the client’s problems stem from student loan debts. For years we’ve told our clients that bankruptcy won’t solve the student loan problem. We’ve got insurmountable standards to meet for discharge of student loan debts, and it’s never a sure thing. For clients who may have a shot at discharge of their student loans, the next problem is one of finances: if someone’s in bad enough shape to meet the standards of 523(a)(8) then it’s a good guess that they can’t afford the legal fees required to bring the adversary proceeding. Rather than send away the client with a promise to get in touch if the bankruptcy 44 CONSUMER BANKRUPTCY JOURNAL In the old days you had few choices for federal student loan repayment. If you couldn’t make those payments then you had to scramble until your financial situation turned around. But the federal student loan game has changed, giving you more ways to remain in repayment. Your options now include: ● Standard Repayment: You pay a fixed amount each year for up to ten years. ● Graduated Repayment: Payments are lower at first and then increase each year for up to ten years. ● Extended Repayment: You can choose fixed or graduated payments over a 25 year period. ● Income Contingent Repayment (ICR): The loan servicer calculates your payment each year and based on your adjusted gross income, family size, and the total amount of your Direct Loans. Your payments change as your income changes, and the lender forgives any unpaid balance after 25 years. Summer 2015 ● Income Based Repayment (IBR): Your maximum monthly payments will be 15 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Payments adjust each year based on your adjusted gross income, and the unpaid balance is forgiven after 25 years. For people who were new borrowers on or after July 1, 2014, payments are 10% of discretionary income and the unpaid balance is forgiven after 20 years. ● Pay-As-You-Earn (PAYE): Your maximum monthly payments will be 10 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Payments adjust each year based on your adjusted gross income, and the unpaid balance is forgiven after 20 years. ● REPAYE: Under this brand proposed new system (which has not yet been approved but is expected to be available in 2016), payments will be capped at 10% of a borrower’s discretionary income. The repayment term is 20 years for students who took out federal loans for undergraduate education National Association of Consumer Bankruptcy Attorneys