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What can you do? Outside of paying, forbearing and consolidating ( oh don’t consolidate because you make it a “new debt” outside of the 10 year or 20 year track) start with these first three steps…

 

Become versed with legislative action and follow www.govtrack.us/start AND

Get involved, call your Senators, Congress members and Representatives

 

S 114/H.R 532 MEMBERS OF CONGRESS WHO ALREADY SPONSOR

 

SENATORS: Baldwin, Boxer, Franken, Gillibrand, Harkin, Hirono, Murphy, Reed, Rockefeller, Sanders, Warren, Whitehouse, Wyden

REPS: Bordallo, Brownley, Butterfield, Castor, Chu, Conyers, Courtney, D. Davis, Edwards, Ellison, Eshoo, Holt, Honda, H. Johnson, Lee, Lofgren, McGovern, McNerney, G. Miller, Moore, Moran, S.Peters, Pingree, Quigley, Rangel, T. Ryan, Schakowsky, Shea-Porter, Swalwell, Tierney, Titus, Velazquez, Watt, Waxman

 

NO REPUBLICAN HAS CO SPONSORED THIS BILL

  • The Member of Congress’s decision to support S.114/H.R.532 reinforces the urgent need for Congress to act on this proposal as it takes a critical step in addressing the broader problem of student loan debt in the United States. NACBA has been engaging on this issue for some time and working to rally wider Congressional support for this proposal. We  need to applaud the Member of Congress for joining in this effort.

 

  • According to data from the Consumer Financial Protection Bureau (CFPB), total student loan debt (both federal and private) in the United States surpassed $1.2 trillion in July of 2013, making it second only to mortgage debt as the largest of all the types of debt that Americans hold. Roughly 40 million Americans have student loans, and owe an average of $30,000 each. A share of the total $1.2 trillion debt consists of more than $150 billion in outstanding private student loan debt. The CFPB estimates that there are 850,000 private student loans in default, and many more in distress.

 

  • This growing student loan debt has broader consequences for the entire economy. Generally, high student debt burdens limit borrowers’ ability to take on new financial obligations. Heavy debt from student loans has a domino effect on the economy and affects borrowers of all ages’ ability to access credit, get a job, make major financial decisions such as purchasing a home or car, or for older borrowers, to retire.

 

  • Economists are also increasingly noting student loan debt’s dragging effect on household formation, as high debt to income ratios impede borrowers from becoming homeowners or starting families. For example, research by The Federal Reserve Bank of Cleveland shows that three-quarters of the overall shortfall in household formation can be attributed to reductions among younger adults ages 18-34. This reduction is likely related to rising student debt levels, causing young adults to avoid the financial obligations necessary to start a family.

 

  • In its May 8, 2013 report focusing exclusively on the private student loan market, the CFPB also found that student loan debt can suppress risk-taking and innovation by discouraging the formation of new businesses. Student debt burdens require entrepreneurs of all ages to divert cash away from their businesses so they can make monthly student loan payments.

 

  • We  must urge the Senator/Representative to cosponsor legislation that would address the current generation of struggling private student loan borrowers: S. 114/H.R.532. Introduced by Senator Durbin and co-sponsored by several of his colleagues, this legislation would restore bankruptcy protection for private student loans. While there is an argument to be made that both government and private loans should be dischargeable in bankruptcy, we are focused most immediately on private student loans.  That is because, unlike federal student loans, private loans generally do not provide for income-based repayment options for borrowers in financial distress, or for rehabilitation options for borrowers in default. An October 2012 CFPB report backed up this reality, finding that many borrowers of private student loans in periods of temporary hardship were unable to negotiate affordable repayment plans with their lenders and servicers.

 

  • There simply is no good reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers since there are no interest rate limits or limits on fees charged for private student loans. Unlike government-backed student loans, private student loans are voluntary credit transactions based on the creditor’s assessment of risk.

 

  • In its August 2012 report, the CFPB and the Department of Education recommended that Congress revisit the harsh treatment of private student loans in bankruptcy. The report finds that the 2005 change in the law coincided with a rapid growth in questionable lending practices, compounding the risk to student borrowers. It also found little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit. The agencies recommended that Congress revisit this unfair restriction, an important policy step that S.114 takes.

 

 

  • We also recognize that this is a multi-faceted problem requiring multiple solutions throughout each stage of the lending process and the life of a student loan. Restoring the bankruptcy discharge for private student loans is one narrow solution that would provide immediate relief to the most distressed student loan borrowers. Combined with other proposals, restoring the bankruptcy discharge for private student loans would have a real impact for Americans with unmanageable student loan debt

 

 

  1. 114, “Fairness for Struggling Students Act”

H.R. 532, “Private Student Loan Bankruptcy Fairness Act”

 

Questions & Answers

What does this legislation do?

Unlike most kinds of debt, student loans of all types currently are non-dischargeable in bankruptcy, except on a judicial finding of undue hardship (an extremely difficult standard to meet). The effect of this legislation will be to restore bankruptcy protection for private student loans, which were made nondischargeable in the 2005 Bankruptcy Act. Government student loans (federal and state) and loans made directly by nonprofit colleges would remain non-dischargeable in bankruptcy.

Who is sponsoring the legislation?

Senator Dick Durbin (D-IL) is the chief sponsor of S.114, and HELP Committee Chairman Tom Harkin is an original cosponsor. Representative Steven Cohen (D-TN) is the chief sponsor of companion House legislation, H.R. 532. Judiciary Committee ranking member John Conyers (D-MI) and Education and Labor Committee ranking member George Miller (D-CA) are original cosponsors.

Why is this legislation needed?

If all goes well, college graduates earn significantly more money than those with high school degrees. However, this is not always the case. Some find their chosen professions are not as lucrative as they thought. Others find few jobs are available, may lose their job in the current economic environment, or may be significantly “underemployed.”  

Student loan borrowers of all ages are faced with unexpected life traumas such as disability, divorce or death of a family member. Whatever the circumstance, private student loan borrowers are allowed very little margin for error and easily may end up with unmanageable student loan debt. Unlike federal loans, private student loans do not offer options such as deferment, income-based repayment or loan forgiveness. As a result, private student loan borrowers face a lifetime of debt with little or no chance for escape.  

Missing just one student loan payment puts a borrower in delinquent status. After nine months of delinquency a borrower is in default. As younger college students, middle aged borrowers and parents all have taken on larger student loan burdens, the number of defaults has grown significantly. Borrowers facing only a temporary setback often find themselves quickly in a much deeper hole; compounding interest, collection fees, and negative credit report notations all accrue, making it difficult to get out from under the ballooning loan balance or to find a decent job.   

The current bankruptcy law treats student loan borrowers who face financial tragedy in the same, severe manner as people trying to escape child support payments, alimony, overdue taxes, and criminal fines. That makes no sense. Moreover, there is no good reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers since there are no meaningful borrowing limits, or caps on interest rates and fees charged for private student loans. Furthermore, there are extremely limited repayment options for those borrowers facing financial hardship.  

 

What is the impact on the broader economy of the rise in student loan debt?

Growing student loan debt has broader consequences for the entire economy.  Generally, high student debt burdens limit borrowers’ ability to take on new financial obligations. Heavy debt from student loans has a domino effect on the economy and affects borrowers of all ages’ ability to access credit, get a job, make major financial decisions such as purchasing a car or home, or for older borrowers, to retire. Economists are increasingly noting student loan debt’s dragging effect on household formation, as high debt to income ratios impede borrowers from becoming homeowners or starting families. Student loan debt can also suppress risk-taking and innovation by discouraging the formation of new businesses. Student loan debt burdens require entrepreneurs of all ages to divert cash away from their businesses so they can make monthly student loan payments.

 

What did the CFPB and Department of Education conclude about private student loans?

In July 2012, a joint report from the Consumer Financial Protection Bureau (CFPB) and the Department of Education documented the need for bankruptcy relief for struggling private loan borrowers. Importantly, the agencies recommended that Congress revisit the harsh treatment of private student loans in bankruptcy. The report found that the 2005 bankruptcy law change coincided with rapid growth in questionable lending practices, compounding the risk to student borrowers. It also found little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit.

Who supports this legislation?

A growing number of students, consumers, higher education institutions, faculty and staff, as well as civil rights and public policy organizations have joined together to call for easing the harsh treatment of private student loans in bankruptcy. A full listing of the organizations supporting the legislation is here.

What is the history of the treatment of student loans in bankruptcy?  

Before 1976: Educational loans are treated the same as all other unsecured consumer loans and are dischargeable in bankruptcy.  

1976 change: Education loans made or guaranteed by a governmental unit are non-dischargeable for five years except with a finding of “undue hardship” (a difficult standard to meet). After five years, the loans are treated the same as other consumer debt.  Justification: Congress was concerned about a perceived, but undocumented problem that people would take out federal student loans and then not repay them, and in the process undermine public support for the federal loan program. The five year wait was designed to help ensure that recent students couldn’t turn around and discharge their student loans before they even got onto a career track.

 

1978 change: Education loans made by nonprofit colleges (“nonprofit institution of higher education”) are added to those made by governments.

 

1990 change: The waiting period increased to seven years, and the type of loans are expanded to include those made by a program funded in whole or in part by a governmental unit or a “nonprofit institution.” Also, instead of applying only to loans, the provision would apply also to “an obligation to repay funds received as an educational benefit, scholarship or stipend.” Justification: Unknown; the change was added to the Crime Control Act of 1990.

 

1998 change: The seven year waiting period for a discharge was eliminated, making government and nonprofit education loans non-dischargeable except in cases of an undue hardship.  Justification: concern about costs.  

 

2005 change: Added “any other education loan” – private student loans — to the list of non-dischargeable education loans. Justification (from 1999 Congressional Record when the amendment was originally adopted on the House floor): Make loans more available by giving “the private lender the same protection under bankruptcy that the federally guaranteed loan program has and nonprofit organizations have.”

 

Would restoring the bankruptcy discharge cause lenders to stop making private student loans?

The private student loan market was experiencing dramatic growth before the change in bankruptcy law in 2005. According to the College Board, private student loan volume increased from $1.5 billion to $13 billion between 1997 and 2005, during which time private student loans were dischargeable in bankruptcy. Other forms of consumer credit, such as credit cards, continue to flourish without any special bankruptcy protections. In addition, lenders know that there are other curbs on consumer’s ability to file for bankruptcy, including the 2005-imposed means test.  

 

Would this mean that borrowers with the means to pay could have their loans discharged in bankruptcy?

Restoring bankruptcy protection for student loan debt is not the same thing as simply forgiving these loans. The 2005 changes to the Bankruptcy Code ensure that debtors who enter bankruptcy with funds to repay debts are not able to simply liquidate them through Chapter 7. For example, there now is a means test to determine if a debtor can repay creditors. In addition, there are significant new barriers to bankruptcy relief, including higher filing fees and mandatory counseling and education requirements. Any question about the existence or extent of past abuse of the bankruptcy system should be put to rest by the new system. Discharge should be restored for students who truly need the bankruptcy safety net.

 

Will this change lead to higher interest rates or fees on private student loans?

There is no evidence that interest rates or fees went down when this change was made in 2005, so there is no reason to believe that changing it back will have any measurable impact. Again, the CFPB has debunked this myth.

 

Why shouldn’t this change apply only to loans made in the future?

Changes to bankruptcy law typically apply retroactively unless those changes affect filing rules or other bankruptcy prerequisites. Retroactive coverage is particularly necessary and fair in this case because private student loans have historically been dischargeable in bankruptcy just like other kinds of consumer credit.  

 

Why not just fix undue hardship?

Borrowers in severe financial distress who meet the strict standards for declaring bankruptcy have already proven that they cannot afford to pay off their debts. They should not be forced to initiate an additional legal process, one where the odds are stacked against them, just to prove that they can’t pay off their private student loans. Indeed, recent investigative reports and a wealth of case law highlight how student loan servicers aggressively challenge those student loan borrowers desperate enough to seek bankruptcy relief.

 

What about a waiting period?

Borrowers who meet the strict criteria for declaring bankruptcy are in severe financial distress, triggered by circumstances such as a family illness, massive medical bills, or prolonged unemployment. No one can predict the timing of such crises.

 

Was there abuse by student loan debtors in the past?

No, there was never any evidence of significant abuse of bankruptcy by student loan borrowers, and evidence that future student-loan borrowers would strategically flock to bankruptcy protection remains weak. A study conducted in 1977 by GAO analyzed the bankruptcy filings of borrowers whose student loans were discharged found that the student loans themselves were generally not the cause. In a random study of bankruptcy discharges of student loans prior to the reforms of the late 1970s, only eight percent of bankruptcy filers with student loans had no other outstanding debts. Most borrowers had significant unsecured debts other than student loans: On average, student loans were only 29 percent of all debts reported by these bankruptcy filers. Most consumers file for bankruptcy because of unexpected emergencies or traumas in their lives.  

Suggested Resources:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER BILLS AND RESOLUTIONS

 

To establish student loan borrowers’ rights to basic consumer protections, reasonable and flexible repayment options, access to earned credentials, and effective loan cancellation in exchange for public service, and for other purposes.

  • H.R. 3170: Student Debt Repayment Fairness Act
    • To amend the Internal Revenue Code of 1986 to allow without penalty any 529 plan distributions used for student loans payments.
  • H.R. 3450: Student Debt Repayment Fairness Act of 2015
    • To amend the Truth in Lending Act to prohibit private educational lenders from requiring accelerated repayment of private education loans upon the death or disability of a cosigner of the loan.
  • S. 840: Student Loan Borrower Bill of Rights
    • A bill to require certain protections for student loan borrowers, and for other purposes.
  • H.R. 649: Student Loan Refinancing Act
    • To authorize borrowers of loans under the William D. Ford Federal Direct Loan Program to modify the interest rate of such loans to be equal to the interest rate for such loans at the time of modification.
  • S. 2099: Student Loan Relief Act of 2015
    • A bill to provide for the establishment of a mechanism to allow borrowers of Federal student loans to refinance their loans, to amend the Internal Revenue Code of 1986 to extend the exclusion for employer-provided educational assistance to employer payment of interest on certain refinanced student loans, and for other purposes.
  • S. 1557: Servicemember Student Loan Affordability Act of 2015
  • A bill to amend the Servicemembers Civil Relief Act to extend the interest rate limitation on debt entered into during military service to debt incurred during military service to consolidate or refinance student loans incurred before military service, and for other purposes.

 

To amend the Servicemembers Civil Relief Act to extend the interest rate limitation on debt entered into during military service to debt incurred during military service to consolidate or refinance student loans incurred before military service

 

WHEN IS TUITION A STUDENT LOAN DEBT OR CONTRACT

  1. Get your original “contract” from your school

The difference is very important to many of us who have private loans.  Most recently, Judge Elisabeth Stong of the Eastern District of New York questioned if the Debtor had a “debt” to repay a college tuition  Harris EDNY BK 13-47320 ( which is dischargeable in bankruptcy court) or an educational loan ( which is not dischargeable in bankruptcy without an adversary proceeding).  The case involves a debtor that received employer reimbursement to take college classes at Brookline College.  The college had the client sign a Tuition Plan Payment Contract (attached).  The contract provided that the student would pay for the “processing loan” and that the student would be responsible for the payment of any balance.  But the contract does not refer or allow for any  “loan” attached to the contract.  Additionally, the only loans shown on the one page contract is for Stafford subsidized and unsubsidized  loan, no promissory loan or note to the college.  Many students sign tuition plans payments, but a contract to pay tuition is NOT the same as an educational loan.  Contractual obligations to repay a debt (tuition) may be dischargeable if it is not a student loan.  

Google:

Cazenovia Coll v. Renshaw 222 F.3d 82 ( 2d. Cir 2000)

In re Joyner, 171 B.R 762 (Bankr. E.D Pa 1994)

In  Re Nelson 188 B.R 32 (D.S.D 1995)

In Re Ellensburg 89 B.R 258 ( Bankr.D Ga 1988)

DO THEY HAVE MY DOCUMENTS?

      ARE STUDENT LOANS DISCHARGEABLE IN BANKRUPTCY

 

  1. 3. If you  DO have a student loan does your creditor have documents AND do you satisfy In re Brunner

.

I and a few other bankruptcy attorneys are appearing and challenging the standing of creditors due to lack of documentation.  Many owners of student loan debt such as Navient ( Oh they are being sued by the Department of Justice:  (check out:  sallie-mae-spinoff-navient-could-face-cfpb-lawsuit-over-student-loans%, http://www.classaction.org/sallie-mae-late-fee-lawsuit.

Dept of Education, Bank of America Student Loan Trust, Wilmington Trust, National Collegiate Trust do not have original documents or even copies of documents with signatures.  Additionally, like mortgages, the student loans have been securitized and are moved electronically without any or little original document or signatures.

Bankrutpcy:

The bankruptcy code allows for a student loan debt to be discharged with proof of undue hardship. 11 U.S.C 523(a)(8)Code specifically states that:

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—

(A)

(i)

an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii)

an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B)

any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.

 

The interpretation of the code, case law, is found with In re Brunner (cited below) however case law makes proving a hardship very difficult, but not impossible

Therefore, just because you went to a college you must first MAKE SOME NOISE TO YOUR REPRESENTATIVES… review your original contract to confirm that it is in fact a contract for a student loan debt, and then needing extra help with all of your debt in bankruptcy…see if you satisfy the In re Brunner aspects.

 

Marie BRUNNER, Appellant,

v.

NEW YORK STATE HIGHER EDUCATION SERVICES CORP., Appellee.

No. 41, Docket 87-5013.

Argued Sept. 22, 1987.

Decided Oct. 14, 1987.

Before LUMBARD, OAKES and KEARSE, Circuit Judges.

PER CURIAM:

Marie Brunner, pro se, appeals from a decision of the United States District Court for the Southern District of New York, Charles S. Haight, Judge, which held that it was error for the bankruptcy court to discharge her student loans based on “undue hardship,” 46 B.R. 752 (Bankr.D.C.N.Y.1985). We affirm.

[1][2] While this court is obliged to accept the bankruptcy court’s undisturbed findings of fact unless they are clearly erroneous, it is not required to accept its conclusions as to the legal effect of those findings. Montco, Inc. v. Glatzer (In re Emergency Beacon Corp.), 665 F.2d 36, 40 (2d Cir.1981) (citing Queens Blvd. Wine & Liquor Corp. v. Blum, 503 F.2d 202 (2d Cir.1974); R.Bankr.P. 810 (current version, see R.Bankr.P. 8013); Bank of Pa. v. Adlman, 541 F.2d 999, 1005 (2d Cir.1976)). Whether not discharging Brunner’s student loans would impose on her “undue hardship” under 11 U.S.C. 523(a)(8)(B) requires a conclusion regarding the legal effect of the bankruptcy court’s findings as to her circumstances. Therefore, the bankruptcy court’s conclusion of “undue hardship” properly was reviewed by the district court.

3] As noted by the district court, there is very little appellate authority on the definition of “undue hardship” in the context of 11 U.S.C. 523(a)(8)(B). Based on legislative history and the decisions of other district and bankruptcy courts, the district court adopted a standard for “undue hardship” requiring a three-part showing: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. For the reasons set forth in the district court’s order, we adopt this analysis. The first part of this test has been applied frequently as the minimum necessary to establish “undue hardship.” See, e.g., Bryant v. Pennsylvania Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913, 915 (Bankr.E.D.Pa.1987); North Dakota State Bd. of Higher Educ. v. Frech (In re Frech), 62 B.R. 235 (Bankr.D.Minn.1986); Marion v. Pennsylvania Higher Educ. Assistance Agency (In re Marion), 61 B.R. 815 (Bankr.W.D.Pa.1986). Requiring such a showing comports with common sense as well.

The further showing required by part two of the test is also reasonable in light of the clear congressional intent exhibited in section 523(a)(8) to make the discharge of student loans more difficult than that of other nonexcepted debt. Predicting future income is, as the district court noted, problematic. Requiring evidence not only of current inability to pay but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time, more reliably guarantees that the hardship presented is “undue.”

[4] Under the test proposed by the district court, Brunner has not established her eligibility for a discharge of her student loans based on “undue hardship.” The record demonstrates no “additional circumstances” indicating a likelihood that her current inability to find any work will extend for a significant portion of the loan repayment period. She is not disabled, nor elderly, and she has–so far as the record discloses–no dependents. No evidence *397 was presented indicating a total foreclosure of job prospects in her area of training. In fact, at the time of the hearing, only ten months had elapsed since Brunner’s graduation from her Master’s program. Finally, as noted by the district court, Brunner filed for the discharge within a month of the date the first payment of her loans came due. Moreover, she did so without first requesting a deferment of payment, a less drastic remedy available to those unable to pay because of prolonged unemployment. Such conduct does not evidence a good faith attempt to repay her student loans.

It is true, however, that considerable time has elapsed since the original filing of Chapter 7 proceedings, and even since the hearing before the bankruptcy judge. We note that Judge Haight’s order was without prejudice to Brunner’s seeking relief pursuant to R.Bankr.P. 4007(a), (b).

Judgment affirmed.

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