Dealing with student loans can be overwhelming and confusing. And when things get complicated, you might want a professional to answer some of your most pressing student loan questions.
Can student loans actually be discharged in bankruptcy? What are your rights as a borrower? What are your options if you are facing default?
We got the low down from student loan expert, Jay Fleischman, a consumer protection lawyer working in the fields of student loan resolution, bankruptcy, credit reporting errors, and debt collection abuse. Fleischman writes at Consumer Help Central and also hosts the Student Loan Show podcast. He’s the real deal.
We chatted about his experience with student loans, how he got started in such a specific niche, and discussed important issues regarding student loans. Read more to get your top student loan questions answered.
What is your experience with student loans?
Though I didn’t graduate from college with student loans, law school left me with $40,000 in federal student loan debt.
How did you get started as a student loan lawyer?
As a lawyer practicing in the field of consumer bankruptcy, I was frustrated with what I saw as the limited options for borrowers to obtain relief from their student loans.
I was vaguely aware that there were various federal programs, but it was only after committing myself to learning about student loan resolution that I was able to understand the options available to borrowers.
With respect to private student loan resolution, my education started as a result of a client coming to me with questions about a lawsuit for a past due loan. She’d never heard of the entity suing her, so I did some digging and learned that the world of private student loans is far more complicated than I’d ever realized.
This enabled me to help develop various cutting edge ideas and practices to help borrowers level the playing field and gain relief that might not otherwise be possible.
You help student loan borrowers get their loans discharged. How does that work?
Student loan discharge can take many forms. For a few, that may include bankruptcy. For others, administrative discharge or a long-term plan for forgiveness of federal student loans may work best. Private student loan borrowers may have significant opportunities to settle their debts.
For example, private student loans aren’t bought and sold in the same ways as are credit cards. There’s no, “pennies on the dollar,” secondary market.
Rather, private student loans are securitized in the exact same way as mortgages, bundled with thousands of other loans and sold to investors. Those transactions are not only complex, but also rife with legal errors.
Those errors result in loans not being transferred properly, accounting issues, and more. The end result is that many private student loan borrowers may be able to settle their obligations for far less than they originally expected — though not in the same way as for credit card debts.
What are the biggest issues you see student loan borrowers facing and how can they combat those issues?
Student loan borrowers have two issues: the lack of information about their obligations when they sign on the dotted line, and the deliberate misinformation spread by scammers.
Colleges and universities bear a responsibility to educate their students, but so do parents and administrators at the high school level. Most high school students have no understanding of how debt works or what their obligations will look like after graduation.
They’ve got no context for deciding whether it’s a good idea to take out $50,000 in student loans for a degree that may or may not provide a positive return on their educational investment.
The government puts out information about student loans, but it’s difficult to understand and overwhelming.
We’ve got nine repayment options for federal student loans, including the new REPAYE program unrolling in December 2015, each with unique requirements and rules. For example, REPAYE looks like a great idea — 10 percent of your discretionary income paid to federal loans for 20 years, then a discharge of the unpaid balance — but the downsides aren’t promoted.
With no cap on payments and a mandatory inclusion of spousal income, except in very limited situations, many borrowers are going to see their payments rise under REPAYE rather than decrease.
After graduation, student loan borrowers are being pitched by companies that are hiding the truth about their options in an effort to get borrowers to spend thousands of dollars on needless services.
Lawmakers have taken actions to shut down a number of these companies, but without regulation and licensing there’s no way for borrowers to know which services are reputable.
Some of the misinformation may be coming from lawyers who haven’t taken the time to understand the interplay of student loans and bankruptcy. These lawyers aren’t intentionally misleading their clients, but have become conditioned over the years to believe that there’s no relief available for student loans in bankruptcy. If nothing else, using bankruptcy to temporarily restructure student loans may provide a benefit to struggling borrowers.
What are student loan borrowers’ rights?
Borrowers have the right to accurate information about their student loan options, as well as the right to control the manner of collection activities against them. Debt collection and credit reporting laws apply to student loan borrowers, and it’s important for them to understand the rights afforded by those laws.
What tips do you have for borrowers facing default?
Do your homework about your student loan options. Read everything you can, from every possible source. If a website offers help without also providing detailed information about how they provide that help, verify their claims with government sources or licensed attorneys.
Start your research with government sites and free resources, then move to lawyers with expertise in student loan resolution. Pay for advice and information regarding your federal student loans, but not for services — the U.S. Department of Education offers a comprehensive set of forms and instructions at no cost whatsoever.
If you do need to hire a professional for a federal student loan issue, hire a lawyer. Student loan attorneys are not only licensed and regulated by state bars, but will often charge less and provide better service than one of the fly-by-night companies out there.
If you’re looking to refinance or consolidate, know the implications of your choices. Shop around and ask questions before making a decision, always remembering that your financial future is at stake. Run the numbers before it’s too late.
Finally, don’t ignore a lawsuit. You may have valid defenses, but you’ve got only a limited about of time to respond before a lender takes a judgment against you.
Thanks so much to Jay Fleischman for sharing his expertise with our community and answering our student loan questions!
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