Student Loans in the News: Coronavirus Questions
A brief round-up of recent articles and blog posts that discuss current student loan debates and data
About the author: Kevin Mahoney, CFP® is a Millennial financial expert and fee-only financial advisor in Washington, D.C. Kevin's work with his clients focuses on paying off student loans, buying a house, investing savings, and budgeting. Kevin is the founder & CEO of Illumint, a virtual financial planning firm specifically designed to help couples and young families with their financial decisions.
15 Most Popular Questions About Student Loans And Coronavirus
Author Zack Friedman writes:
"6. Does the CARES Act include any student loan forgiveness?
There is no direct student loan forgiveness in the CARES Act.
7. Do these changes apply to public service loan forgiveness?
Yes. You can pause your federal student loan payments and they will still be “counted” toward the required 120 monthly payments for public service loan forgiveness. Many websites are currently showing inaccurate information about public service loan forgiveness and pausing monthly payments based on an earlier rule prior to the CARES Act. If you contact your student loan servicer and are told differently, it’s certainly frustrating. However, the corrected information will be available on the websites of student loan servicers and the Department of Education soon. This new change even has a 'secret' way to get more student loan forgiveness. You can also read the CARES Act to make your own determination.
8. If I pause payments, will this impact my income-driven repayment plan?
As with public service loan forgiveness, if you pause payments, your non-payments will be counted toward the 20 or 25 years of required monthly payments to receive federal student loan forgiveness through an income-driven repayment plan.
9. What relief is offered for private student loans?
The CARES Act applies to federal student loans (not private student loans) such as Direct Loans that are owned by the federal government. The CARES Act does allow employers to help pay your student loans up to $5,250 this year tax-free. If you’re struggling financially to pay private student loans, contact your lender or private student loan servicer to discuss potential options."
[Read the entire article over at Forbes]
Coronavirus stimulus bill: 7 ways student loan borrowers benefit
Author Aarthi Swaminathan writes:
"At the same time, consumer advocates were not pleased with the package.
'Lawmakers’ failed response to the last financial meltdown led directly to our current student debt crisis,' former student loan ombudsman at the Consumer Financial Protection Bureau, Seth Frotman, said in a statement. 'Today’s relief package shows how little we have learned in the past decade. Unless the Trump Administration and Congress take significant, comprehensive additional steps on behalf of the tens of millions of American families with student loans, the next wave of the student debt crisis will be even more devastating.'
Among the frustrations consumer advocates raise with the current package, two stand out:
1) Only borrowers with federal Direct Loans qualify. Borrowers with federally guaranteed loans held by private companies and/or private student loans do not.
Two consumer advocates, Americans for Financial Reform and the Student Borrower Protection Center, wrote letters to banks and refinancing companies to allow borrowers the same benefits federal loan holders have.
'Private student loans are a substantial segment of the consumer credit market, standing nearly on a par with personal consumer loans and exceeding both payday loans and outstanding past due medical debt,' Seth Frotman and Alexis Goldstein, of each organization respectively, wrote to Citizens Financial Group Chairman and CEO Bruce Van Saun. 'If immediate action is not taken, the effects of the coronavirus pandemic could substantially imperil the financial lives of the millions of borrowers who relied on private student loans to pursue the American Dream. That does not have to happen.'”
[Read the entire article over at Yahoo! Finance]
A Bankruptcy Judge Has Thrown Out a Borrower's Student Debt. That's a Big Deal.
The Motley Fool
Author Maurie Backman writes:
"Though the purpose of Chapter 7 is to eliminate a filer's debts, there are some debts that can't be tossed out, such as money owed to the IRS and, in most cases, student loans. In fact, for student debt to be eliminated via the bankruptcy process, a filer must prove that:
Every reasonable effort has been made to pay back those loans.
The filer won't manage to maintain a reasonable standard of living if paying back those loans remains obligatory.
The financial circumstances making those loans unpayable will remain in effect for the bulk of those loans' repayment period.
The first two items on this list are extremely open to interpretation, and so it's difficult to get student debt dismissed if you're not permanently disabled and have the capacity to earn an income and keep paying off those loans over time.
So how did one filer manage to get his student debt eliminated? Apparently, the filer in question had racked up over $221,000 in debt, including accrued interest, but also, his income was such that at the end of each month, he was $1,500 further in the red. Bankruptcy judge Cecilia Morris agreed that the filer had made a reasonable effort to repay his debt, would not be able to maintain a minimal standard of living due to that outstanding debt, and was likely to face similar circumstances throughout the remainder of his repayment period. As such, that student debt was tossed out.
Now one thing that's really significant here is that the filer in question wasn't unemployed; rather, his debt constituted such a hardship that he was able to obtain relief through the bankruptcy process."
[Read the entire article over at The Motley Fool]