Student Loan Defense
Higher education in the U.S. has never been more costly. Students are sold on the “American Dream” that hard work will beget success. But many colleges oversell the value. Tuition continues to climb, despite stagnant wages and fierce competition for jobs.
This has left an estimated 40 million student loan borrowers strapped with more than $1.2 trillion in student loan debts – quintuple the amount owed in 2003.
Miami debt defense lawyers at Jacobs Keeley recognize this surpasses what Americans owe for credits cards, and it’s the third-largest kind of household debt. Any purchasing power new graduates historically had has largely been sapped by overwhelming student-loan debt. Millions have fallen behind.
Worse, federal reforms passed in 2005 make it all but impossible to have those debts discharged in a bankruptcy, except under the most dire circumstances. A default not only tarnishes one’s credit score, it can result in litigation and garnished wages.
But there is hope.
Our experienced debt mitigation attorneys can help you negotiate with your lender. Most student-loan lenders have alternative payment plans. But compelling them to work with you can be a challenge – one to which we have risen successfully.Negotiating a New Payment Plan
Firms that disburse federal loans are required by law to offer deferment options to borrowers, which allow postponement of payments during a hardship. Additionally, certain lenders are mandated to give borrowers the chance to alter payment plans at least once annually.
While most student loans are repayable within 10 years, some can be extended up to 25 years, allowing monthly payments as low as $50 monthly. There are also plans that are contingent on gross annual income, allowing graduates to pay anywhere from 4 percent to 25 percent.
Some plans allow for step-up payments, wherein borrowers pay a certain portion for the first few years, and then the amount rises steadily every two years over the life of the loan. In situations where borrowers never earn enough to fully repay that loan, the left-over principle after 25 years may be forgiven.
A newer option allows for an income-based repayment plan that caps repayment at 10 percent of discretionary income for students who take out loans after July 1, 2014. The previous cap (still in place for those who took out prior loans) is 15 percent. The plan lowers monthly payments for those with high debt and modest incomes. Family size is also considered. Still, it is likely to increase the length of the loan repayment period, and borrowers are most likely going to accrue more interest over the life of the loan.
Here’s an example:
Let’s say you and your spouse both have student loans – you owe $70,000 and your spouse $45,000. You live in Florida, earn $45,000 and just had a baby. Under the standard 10-year payment plan, you would be saddled with a monthly $777 student loan bill. With a graduated plan, your payments will be reduced to $444 but will steadily climb over the course of 10 years to $1,333. If you’re on an extended graduated plan (which stretches 25 years), your payments will start at $350 and end at $679. If you’re on an extended fixed, your payments will start at $451 and remain so until the end of the loan. If you pay-as-you earn (which lasts 20 years), you can start at $78 monthly and, if your wages remain stagnant, pay up to $298 at the end of the loan term. On the 25-year income-based repayment plan, you’ll start at payments of $117 monthly, and climb to $612 per month. Depending on the plan, you could pay up to $147,000 in interest, but you might also be forgiven as much as $114,000.
There may also be loan forgiveness options through various organizations depending on your profession. For example, the National Health Service Corps. offers some measure of student loan forgiveness after several years of service. Those working in education or public service may have similar opportunities.
We can help you determine which option or combination of options is available and best suited to your financial needs.Moderating a Settlement
In the event all other options have been exhausted, you may be eligible to seek a settlement.
This would be ideal in cases where a relative has offered to pay off your debt on the condition you negotiate a settlement agreement and be done with it. So long as that relative hasn’t co-signed the loan, he or she can’t be held accountable.
But even doing this requires the aid of someone with legal experience. You have to be careful what information you disclose to lenders, and what you don’t. Generally, retirement saving are not eligible for collection, but up to 15 percent of Social Security retirement and disability benefits may be. It’s important to convey a willingness to pay the debt, while still showing an inability to do so. This will make lenders more inclined to reach a deal.
If you are eligible for a settlement, an attorney should review all terms of the offer – which should be carefully documented – to show that all student loan debts will be settled. That way, you aren’t hit with any later surprises.Discharging Student Loans in Hardship Exception
Prior to 1976, student loans were dischargeable in bankruptcy. Changes to the U.S. Bankruptcy Code limited this ability, and reforms passed in 2005 all but eliminated it.
However, there is an option for borrowers in dire straits. You must prove to the court repayment of these loans is an undue hardship. Applying the Brunner test, the bankruptcy court will weigh whether you are living in poverty, have made a good faith effort to repay your student loans and your current financial situation is likely to continue for a substantial portion of the loan life. Those with terminal or disabling illnesses who are no longer able to work are usually the most likely to be granted their request.
If you're battling debt collection or unfair reporting in Miami or the surrounding areas contact Jacobs Keeley Trial Lawyers for a confidential appointment to discuss your rights.
Call us at (305) 358-7991.