Category: Student Loans

  • Student Loan Relief for Public Service Workers: Repeal the 15-day Rule

    Posted by

    Alan White

    More than one million public servants – nurses, soldiers, first responders, teachers—should be eligible now or soon for student loan cancellation under existing law – the Public Service Loan Forgiveness program. Congress and the Administration can accelerate this process now.

    The Education Department and its servicer FedLoan have notoriously rejected 98% of PSLF loan cancellation requests. One of the reasons is a pointless and unhelpful regulation that was not part of the Congressional legislation, but was added by the Education Department – the 15-day rule. The PSLF law calls for public servants to have their loans cancelled after 10 years of repayment. The Department’s regulation defined 10 years of repayment as 120 payments, each made within 15 days of the due date. In real life borrowers make payments early and they make payment late. During the present crisis they cannot be expected to meet this rule.

    Congress is already considering a bill that would give the Education Secretary broad authority to waive regulations. The 15-day rule should be the first to go. The Department and servicer FedLoan should work together to clear away ALL regulatory obstacles to full PSLF implementation.

  • Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

    Posted by

    Pamela Foohey

    Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

    In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

    One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

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  • 600,000 student loan borrowers getting nowhere

    Posted by

    Alan White
    Student loan borrowers who plan to apply for Public Service Loan Forgiveness (PSLF)  after ten years of income-based payments are simply not getting their

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    https://fsaconferences.ed.gov/conferences/library/2019/2019FSAConfSession18.pdf

    payments counted. Between January 2012 and August 2018 nearly one million borrowers submitted an approved public service employer certification. As of August 2019 there are 600,000 of these approved borrowers with ZERO "qualifying" payments towards the required 120.  

     
    In the same presentation USED asserts that most (80%) of borrowers who already applied for forgiveness believing they had completed the required ten years of payments had actually entered repayment less than ten years before applying. This explanation suggests that all is well except that borrowers simply need to wait a few more months to apply. The zero qualifying payments problem proves that the PSLF failure goes much deeper, for the reasons I described in a prior post.

  • What’s Wrong with PSLF and How to Fix It

    Posted by

    Alan White

    The Public Service Loan Forgiveness program has so far rejected roughly 99,000 out of 100,000 student loan borrower applicants. Poor Education Department oversight, poor contract design and implementation, and widespread servicing contractor failures are as much to blame as problems in the legislative and regulatory program design. Making this program work to provide loan relief for potentially millions of public servants requires a comprehensive set of fixes. US Ed. could start by enforcing its contracts and compensating its contractors properly, and by relaxing its needlessly strict 15-day on-time payment rule, while Congress could give borrowers credit for all payments made under any repayment plan. In our new white paper summarizing federal agency reports, attorney general and borrower lawsuits, consumer complaints, and contract documents, my research assistant and I survey the various reasons nearly all applications have been denied, and we propose contractual, regulatory and legislative reforms needed to fix PSLF.

  • USED could have seen PSLF Fail coming

    Posted by

    Alan White

    The Department of Education (USED) knew by 2016 that hundreds of thousands of student loan borrowers planning to apply for public loan service forgiveness (PSLF) were headed for rejection as they started applying in late 2017. The Department conducted a review of servicing contractor PHEAA’s administration of PSLF on October 25, 2016, about a year before the first cohort of borrowers would become eligible for loan cancellation. At the time of the review, 449,860 borrowers were designated as PSLF participants, presumably because they had at least one approved public service employer certification form (ECF). The reviewers audited a sample of 34 borrower loan files, and found that 53% had ZERO qualifying payments. Of those, about 40% were in a non-qualifying payment plan and 60% had ECFs with employment periods ending more than one year prior to the review date, in other words, no current evidence of qualifying employment. Given that all of these borrowers submitted at least one ECF, it is reasonable to assume that most if not all of them were unaware that they were making no progress towards the required 10 years of repayment.

    Instead of faulting PHEAA for a situation in which half of borrowers were in danger of not getting PSLF credit for their payments, USED delved into the minutiae of PSLF payment counting, and found two instances of payment-counting errors resulting from servicing transfers. In their recommendations, the USED reviewers stress “it is imperative that Fedloan Servicing and FSA partner to ensure only those truly eligible for forgiveness receive this benefit.” No mention is made of any need to get in touch with the 53% of borrowers who are in the wrong payment plan or do not have up-to-date employer certifications.

    The authors of the October 25, 2016 review (Debbe Johnson, Larry Porter, and Christian Lee Odom of SFA) note on the first page that it is for internal USED use only and is a policy deliberation document, presumably to shield it from FOIA release. It became public when the House Education and Labor Committee released the review as an exhibit to the committee’s October 2019 report on the PSLF fiasco.

  • $5 to forgive public servant student loans

    Posted by

    Alan White

    Five dollars is the contract payment the US Education Department makes to its servicer FedLoan for a borrower's first approved Public Service Loan Forgiveness (PSLF) employment certification. FedLoan is supposed to review employer certifications, track PSLF borrower payments for ten years, and then process a loan forgiveness application, all for five dollars (plus the servicing fee paid for all loan accounts.) FedLoan must verify that the borrower made each payment on time, in the right payment plan, for the right loan(s), while working for the right employer full time. US Ed. has made FedLoan's task far more difficult than the statute requires, with its 15-day on-time payment regulation and various employer exclusions. The Department needs to seriously rethink its contract design before renewing its 10-year servicing contracts early next year.

    The process of matching each payment with a qualifying employment period appears to account for more than half of the astounding 99% denial rate. The Congressional proposals to fix PSLF have largely missed this point, although the House bill calls for one obvious fix by requiring US Ed. to give FedLoan a list or database of qualifying employers. FedLoan's task would be far easier if the on-time payment rule were scrapped, and replaced with a rule that any borrower who made a total of 120 payments in any payment plan without going into default qualifies, so long as they can submit employment verification for the relevant 10 years. Because borrowers submit IRS information to the servicer each year to set an income-based payment amount, another tech fix would have the servicer store the IRS employer identification number (EIN) and match it with a list of approved public service employers, rather than having the student and employer fill out a 10-page employment certification form every year.

    US Ed.'s public stance (apart from Secretary DeVos' desire to kill PSLF) is to blame Congress for bad program design, while Congressional overseers can't seem to recognize that PSLF can only work with a comprehensive set of legislative, regulatory, and contractual fixes. Meanwhile the count of student loan borrowers with at least one approved ECF, i.e. future PSLF applicants, is 1.1 million.

     

  • Student Loan Crisis Driving Racial Wealth Gap

    Posted by

    Alan White

    Twenty years after taking out student loans, white borrowers have paid 94% of their debt (at the median.)  Black borrowers, on the other hand, have paid 5%. While a disturbing 20% of white borrowers defaulted on student loans at some point during twenty years, a catastrophic 50% of Black borrowers defaulted.

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    Inst. on Assets & Soc. Policy

     A new report from the Institute on Assets and Social Policy at Brandeis collates NCES and other data on student borrowers beginning college in 1995-96 to paint a grim picture of student debt burden as a key contributor to the racial wealth gap. As today's students take on far greater debt than the 1990s cohorts, this pernicious effect can only magnify. Cancelling student loan debt could play an important role in closing the gap. Debt cancellation should be judged not by the dollar amounts of debt forgiven for various borrowers, but by the degree of debt burden relieved for borrowers at various income and asset levels, as explained by progressive economist Marshall Steinbaum.

  • The Fifth Circuit Finds a Way to Make It Even Harder to Discharge Student Loans in Bankruptcy

    Posted by

    Bob Lawless

    On Tuesday, the United States Court of Appeals for the Fifth Circuit released an opinion that, if anything, makes it even more difficult to discharge student loans in bankruptcy. Writing for a three-judge panel in a case called In re Thomas, Judge Edith Jones reaffirmed the court's commitment to the existing case law and added yet another judicial gloss to the words of the statute. The opinion was a missed opportunity to return to a reasonable standard that allows debtors to discharge student debt in appropriate cases while still protecting the public fisc.

    The debtor was over 60 years old, part of the trend of older filers in bankruptcy court. She had taken out $7,000 in student loans for two semesters of community college. Within a year after leaving community college, the debtor developed diabetic neuropathy, which left her unable to work at any job that required standing for any period of time. The debtor had to leave a retail job, a restaurant job, and a job at UPS. She lost a previous job at a call center after it was acquired by another company who then fired her within three months for wearing headphone and listening to music during her lunch break, a determination that probably not so coincidentally meant the debt was ineligible for unemployment insurance.

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  • What Is “Credit”? AfterPay, Earnin’, and ISAs

    Posted by

    Adam Levitin
    A major issue in consumer finance regulation in mid-20th century was what counted as “credit” and was therefore subject to state usury laws and (after 1968) to the federal Truth in Lending Act. Many states had a time-price differential doctrine that held that when a retailer sold goods for future payment, the differential between the price of a cash sale and that of credit sale was not interest for usury law purposes. State retail installment loan acts began to override the time-price doctrine, however, and the federal Truth in Lending Act and regulations thereunder eventually made clear that for its purposes the difference was a “finance charge” that had to be disclosed in a certain way. 
     
    Today, we seem to be coming back full circle to the question of what constitutes “credit.” We’re seeing this is three different product contexts: buy-now-pay-later products like Afterpay; and payday advance products like Bridgit, Dave, and Earnin’; and Income-Sharing Agreements or ISAs (used primarily for education financing). Each of these three product types has a business model that is based on it not being subject to some or all “credit” regulation. Whether those business models are well-founded legally is another matter.
     
    Let me briefly recap what is “credit” for different regulatory purposes and then turn to its application to the types of products.

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  • Middle Class Homeowners Are the Biggest Winners from Student Loan Forgiveness

    Posted by

    Adam Levitin

    A lot of the criticism of Senator Elizabeth Warren’s student loan forgiveness proposal has focused on how it's not fair to give loan forgiveness to current borrowers when past borrowers repaid their debts.  That criticism overlooks the enormous boost Senator Warren's proposal would give to the real estate market. Many previous borrowers are homeowners, and homeowners are going to be one of the major beneficiaries of any student loan debt forgiveness as their home equity value will increase because of the increase in housing demand from deleveraged student borrowers.  

    By my calculations Senator Warren's proposal for $640 billion in student loan forgiveness could readily translate into $1 trillion of increased home equity value plus an additional $320 billion to $680 billion in GDP growth. That's an amazing win-win-win for student loan debtors, for homeowners, and for those in the home building and furnishing trades.  

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