Tag: Navient

Forbearance-Any Good?

Posted by Kevin Hanly on with 0 Comment

According to the regulations, forbearance of federal loans involves a loan holder agreeing to a “temporary” stoppage of payments, an extension of time for making payments or acceptance of less than the full amount due.  The key term in the foregoing definition is “temporary”.

Over the last year, I have had the opportunity to talk with many people who have student loan debt.  A fair amount of them have told me that they could not afford their federal student loan payment, called their servicer, and were put into a forbearance.  Some have told me that they have been in a forbearance for two or three years.  Wrong.

That’s just not me talking.  Recently, the Consumer Financial Protection Bureau (CFPB) sued Navient, the largest servicer of student loans for, among other things, steering borrowers into forbearance rather than analyzing their situation and directing them to a more appropriate repayment plan.  Why is forbearance not appropriate?  Well, first of all, interest accrues during the forbearance period.  That could be up to 5 years for Direct and FFEL loans and three years for Perkins loans. Borrowers come out of forbearance owing sometimes more than 150% of what they owed when they entered forbearance. More importantly, when the borrower leaves forbearance, that interest is capitalized into the unpaid principal.  At that point, the borrower is paying interest on interest.

Why do servicers do this?  Since we have not had testimony in the Navient case, we do not know their rationale or excuse.  However, some of the opinions include that it makes life easier for the servicer- many forbearances are granted over the phone.  Also, many proprietary schools (for profit) place students in forbearance to avoid defaults especially during periods when their default rate is being monitored by the government.

What should you do if you cannot afford your federal loans?   Well, you could consider an income driven repayment plan.  This would make payment affordable (in some cases $0) and you still get credit toward loan forgiveness.

Are there any circumstances where a forbearance is a good idea.  Yes if the forbearance is temporary.  An example would be that you are close to default date, have applied for an income driven repayment plan, and are awaiting a decision which can take up to 90 days.  Rather than slip into default, it would be wise to obtain a forbearance until the decision is made.

Be smart in dealing with your federal student loans.  There are options out there.  Reach out for help.  An experienced student loan attorney can be of real help.

Continuing the Theme

Posted by Kevin Hanly on with 0 Comment

In the last post, we warned the readers to be careful in dealing with servicers who have shown a tendency to push borrowers who are having problems paying back their loans into forbearance rather than giving advice as to how to get into income driven repayment plans.

In 2016, DOE officials, at the request of the Obama administration, sent out memoranda to servicers advising them to be more proactive in helping borrowers manage and/or discharge their debt (“2016 memoranda”).  The problem from the servicers’ point of view is that providing the services requested in the 2016 memoranda would require more sophisticated representatives to deal with the borrower’s issues.  Those reps need to be trained, and then be paid a salary commensurate with their enhanced abilities.  Moreover, the reps will need to spend more time with borrowers to try to arrive at a workable plan.  Bottom line- what the 2016 memoranda requested is much more expensive for servicers and, undoubtedly, will cut into their profit.

Servicing contracts for student loans are awarded on a multi-year basis by the Federal Student Aid Office.  The current contracts are set to expire in 2019.  The general consensus of experts in the area of student loan servicing was that the reforms called for in the 2016 memoranda would be considered seriously in evaluating which companies get  the new contracts.

Navient is in consideration for the 2019 servicing contracts. In January, 2017, the CFPB and the attorneys general of Illinois and Washington filed lawsuits against Navient.  Among the allegations were that Navient did not adequately inform borrowers about more affordable income driven repayment plans, lost paperwork and misapplied payments. The lawsuit, the numerous complaints by individual student loan borrowers to the CFPB ombudsman, and the attendant negative publicity associated therewith, could not enhance their chances of being awarded a new contract. One would think.

But, the pushback is well under way.  About two weeks ago, the National Council of Higher Education Resources, one of the student loan industry’s main lobbyists, set letters to the House and Senate appropriations committees urging that Congress direct the DOE to look at the new servicing contracts to reduce unnecessary and burdensome requirements.  This week, Education Secretary DeVos rescinded the 2016 memoranda stating that the proposed contract process has been beset by moving deadlines, changing requirements and lack of consistent objectives.  DeVos emphasized that the DOE should create a loan servicing environment that provides the highest quality customer service while limiting the cost to taxpayers.  No details on what any of that means. Navient shares increased in value by 2% of the day of DeVos’s announcement.  So, Wall St. is betting on Navient being there when the smoke settles.

According to Rohit Chopra, the former student loan ombudsman at CFPB, the DeVos directive is a big win for companies that have run roughshod over borrowers.

What does this mean to the average student loan borrower?  There may be a restrictions on repayment plans.  But, if that happens, it will be down the line.  On a more practical level, servicers will be given a more free hand to aggressively pursuing student debt.  And don’t expect these servicers to be user friendly.

Our advice is to be pro-active, and to seek help early on in the process.

Straight Talk

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It is spring break time.  So, you can expect to see stories about young people going to Florida, the Caribbean or Mexico to party.  Nothing new.  However, this year, there have been a slew of stories about students supposedly using their student loan money to fund the party.  A recent Forbes article by Kate Ashford stated that a recent poll of students indicated that 30.6% of students stated that they are using student loan money to help pay for spring break this year.

Why would students do that?  An Investor Business Daily editorial indicated that just under one-half of millennials believe that their student loans will be forgiven.  After all, Bernie Sanders advocated for forgiving student loans.

So, if the loan is forgiven, who is left with the bill?  The taxpayer.  Sometimes that approach may have some validity on a societal basis if the beneficiary is truly needy.  However, the bottomline is that people with a college degree or higher make significantly more money than people with only a high school degree.  So, in effect, the student loan borrowers looking for blanket amnesty are expecting less fortunate people to pay their debt.  Not going to work, especially considering the outcome of the election.

Lets get real.  Student debt is over a trillion dollars, and up 17% since 2013.  Student loan debt is rising at a rate 3 times inflation, and it is not getting better.  Moreover, on federal loans, the Department of Education has many nasty tools to insure that they are going to collect their money.  The loan is hardly ever dischargeable in bankruptcy, and the DOE can garnish your wages, grab part of your social security check and your full tax refund without even going to court.  Private lenders got all the benefits of non-dischargeability without having to make concessions to borrowers on repayment plans geared to income (Congress really dropped the ball on this one).   Borrowers are not going to get a political bailout, and face a daunting task if they default on either a federal, state or private loans.

Who do you turn to?  Your friendly servicer.  According to the government, the servicers are there to advise the student about the best way to deal with their students loans.  But many just push you into forbearances. In the short run, that may forestall payments.  However, the accrued interest is just added to your principal debt.  So, you leave forbearance owing more than you entered.  In January, the CFPB filed a 66 page complaint against Navient alleging, among other things, that Navient pushed federal loan borrowers with long term employment issues into forbearances instead of income driven plans.

Your student debt is not going to go away miraculously.  You are going to have to deal with it.  We are here to help.