In the current economic climate, many clients are having difficulty with their mortgages, credit card and other consumer debts. Recently student loan debt has garnered increased attention as more and more graduates leave school with at least $20,000 in debt and few job options. Because clients often have questions about multiple legal issues when they seek advice, this article provides brief but important advice young lawyers can give their clients who are having difficulty paying back their student loans.
Gather documents and information
When clients are seek legal advice about a student loan debt, they may be several months past due or delinquent on their payments. While you should always ask clients to bring all their documentation to their appointment, you should be aware of resources available to track student loan debt. The first resource is a credit report. Annualcreditreport.com provides free credit reports once a year from all three credit reporting agencies.
When reviewing the credit report, it is important to note who actually has the right to collect on a loan. You should review the credit report with your client to track the loan sale or assignment to other debt collectors if any. If the client presents collection letters to you, be sure the debt holder in the letters and the current holder according to the credit report of the loan match. Also, you should verify the amount of the loan with your client.
The National Student Loan Database is another important resource that you and your clients should be familiar with. The Database can be found at http://www.nslds.ed.gov/nslds_SA/. This comprehensive database lists most information about any of the client’s federal student loans, including the loan servicer, the loan guaranty agency, whether it is subsidized or unsubsidized, the amount of interest on the loan as well as the total balance due. This website is particularly important to use when deciding whether to consolidate student loans which will be discussed below.
Design a chart containing the relevant information
After identifying and organizing the client’s student loan debt, you should figure out the status of each loan, i.e. whether it is current, delinquent or in default. Even if your client is unsure how many days he or she has been unable to pay the bill, this should be clear on the credit report. After compiling this information, create a chart that contains the balance of the loan, the loan holder, and the number of days it is past due. Explain this chart to your client and give the client a copy. You should talk to your client about organized record keeping. For example, you should create a chart for your client to log all calls from collectors he or she receives. The chart should contain the name of the representative, the representative’s direct extension, the time and duration of the call and the substance of the call. This chart can be particularly useful to you in negotiating with collectors who violate the Fair Debt Collection Practices Act (FDCPA) or fail to provide documentary proof that the debt collection agency actually has the right to collect on your client’s debt. Helping your client become more proactive helps you.
Settling a debt by making an offer
After gathering this information, you should review the options your client has for repaying the loan. In some cases, your client may have neglected to pay the loan because he or she failed to provide a current mailing address to the loan servicer. If this is the case and the loan has been sold or assigned to a debt collector, you should ascertain whether your client is in the position to make the debt collector a lump sum offer. If your client is in the position to make at least a fifty percent offer, you should obtain written authorization from the client, contact the collection agency, fax the authorization over directly to the representative you will be speaking with, and negotiate a settlement of the debt.
If your client does not have the money to pay a lump sum now but perhaps will in the short term future, see if you can set up a payment plan for the settled amount. You should encourage your client to be honest about how much he or she can pay and how that will impact his or her monthly budget Any terms of the payment plan must be discussed with your client and then confirmed in writing to the debt collection company.. When the settling the debt, you should request that all negative reporting information be removed from your client’s credit report once the final payment has been made. In addition, you and your client should be clear about the rights and responsibilities each party has if a payment is missed.
Settling a debt through forbearance, deferments, and/or consolidation
If your client is not in the position to make a lump sum offer, there are several options that an advocate should research. First, ascertain whether a forbearance or loan deferment plan is available. Depending on the loan servicing company, a deferment may be granted for a period of time, usually six months. During this time, payments are postponed. This option is only available if the client has not yet defaulted on a student loan. Deferments are generally granted upon showing economic hardship, unemployment or active duty military services.
Forbearance can postpone repayment, extend the time for making payments or establish a smaller payment amount. An important difference between forbearance and deferment is that interest continues to accrue while the loan is in forbearance. Be sure to advise your client of this distinction. Forbearance is an available remedy to clients who are already in default. In some cases, your client may have a statutory right to a mandatory forbearance, as long as he or she can provide supporting documentation.
Consolidation may also be an option if your client has subsidized Stafford loans, unsubsidized loans, PLUS loans, Direct loans, Perkins loans or any other federally-insured student loans. Consolidation can make repaying student loans simple in that clients can make one monthly payment on all their federal loans. In addition, income contingent repayment plans and income sensitive repayment plan options are available for consolidated loans. Before filling out a consolidation application, you and your client should refer to the National Student Loan Database and the Department of Education’s online calculator (loanconsolidation.ed.gov) to determine the amount the monthly payments will be and the new total balance due. One of the downsides that you and your client should be clear about is that consolidation may not be a good option if the client owes a lot of loan interest. Generally, once loans are consolidated, interest is converted to the principal. Thus, if your client has a mix of high interest and low interest loans, you may want to discuss only consolidating of the low interest loans and pursuing alternate repayment options for the high interest loans.
Defending collection actions- bankruptcy, loan cancellation and statutory requirements
You may meet with a client who is not in the position to make any student loan payments. This may be because the client is long term unemployed or has maximized deferment or forbearance options. The client may have already had collection actions taken and are now unable to pay other bills. If this is your client’s situation, your first step should be to make sure your client has as much information about the debt, collection powers, and his or her own assets as possible.
Generally, there is no “quick fix” to this issue, although some borrowers are eligible for loan cancellation or discharge through bankruptcy. Loan cancellation is available if the borrower’s school closed while the borrower was enrolled, the school failed to issue a refund owed to the borrower, the borrower becomes permanently and totally disabled, the borrower’s dies, or the school falsely certified the student’s loan eligibility. The discharge of student loan debt through bankruptcy is an available, but extremely difficult remedy. The client must establish that continuing to pay student loan debt would be an “undue hardship.” Your time and your client’s money may be better spent rehabilitating the loan than pursuing bankruptcy.
Your client should understand that collection powers on student loans are generally much stronger than any other consumer debt. Creditors may garnish wages, levy bank accounts, intercept tax refunds or place liens on property held by the borrower or the co-signer without a court order. If your client has not paid attention to notices, he or she may have waived a right to a hearing.
However, to bring collection actions against an individual who is delinquent on student loans, the collection agency or loan servicer has to abide by several statutory requirements. For example, before a collector can garnish wages, it must send written notice to the borrower listing the nature and amount of the debt, the intention of the agency to garnish the borrower’s pay and an explanation of the borrower’s rights. Further, collectors must offer the opportunity to enter a payment plan in lieu of the garnishment.. Failure of the agency to abide by these requirements may be a violation of the FDCPA and may invalidate any garnishment actions. If your client has already had garnishment actions taken, be sure to review all notices mailed to your client and ensure they are compliance with the law.
Conclusion
The above considerations are a good starting point for having an informed conversation with a client having trouble paying his or her student loans. Other resources are available and should be utilized.
