Repayment Strategies for Getting Out Of Student Loan Default

The two primary ways to get out of Student Loan Default are through Consolidation and Rehabilitation.    The first step is to research your student loan online and determine what kind of loans that you have under your account.  Check the following website to research all federal student loans: http://www.nslds.ed.gov/nslds_SA/

 1.     Consolidation:

Borrowers can consolidate their defaulted student loans into a new Direct Consolidation Loan with a repayment plan tied to their income. After obtaining a Consolidation Loan, the borrower gets a fresh start with a new loan.  As of July 1, 2010, Direct Consolidation Loans are the only type of federal consolidation loans available. All federal loan borrowers may obtain Direct Consolidation Loans. However, they must have at least one Federal Family Education Loan (FFEL) or Direct Loan Program Loan (Direct Loan) to qualify for consolidation.

There are drawbacks and limits to consolidation as a way out of default. Borrowers should understand that the balance will increase after consolidation due to the addition of collection fees. One of the most important limits is that defaulted Direct Consolidation Loans may not be reconsolidated. In effect, this means the borrower has only one shot at consolidating as a way out of default.

To obtain a Direct Consolidation Loan, borrowers in default either have to make three (3) consecutive reasonable and affordable payments based on their total financial circumstances or agree to select an income-contingent repayment plan (ICRP) or income based repayment (IBR) plan.

Payments Are Not Required to Get Out of Default Through Consolidation

Unfortunately, the Department of Education and Collection Agencies often claim inaccurately that all borrowers must make preliminary payments (sometimes three, sometimes six) in order to consolidate out of default.

This misinformation derives from the Department of Education’s monetary incentive system which motivates Collection Agencies to lie, cheat and steal from borrowers with limited means. The monetary incentive system disproportionately rewards Collections Agencies if borrowers make payments prior to consolidation. It is important to know that this is not the law and does not have to be followed in order to be successful at pursuing a consolidation to get out of default.

Furthermore, if a borrower applies directly to the Direct Loan Program for consolidation and does not use the Collection Agency as a middleperson, the agency will generally not earn any fee. There is no charge to obtain a Direct Consolidation Loan. Borrowers may apply by regular mail, on-line, or by phone under certain circumstances. Borrowers may request an application by calling the current toll-free number, 1-800-557-7392 or, for TDD, 1-800-557-7395. Borrowers can also apply for Direct Consolidation Loans on-line at 

https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Repayment Strategies for Getting Out Of Student Loan Default

The two primary ways to get out of Student Loan Default are through Consolidation and Rehabilitation.    The first step is to research your student loan online and determine what kind of loans that you have under your account.  Check the following website to research all federal student loans: http://www.nslds.ed.gov/nslds_SA/

 1.     Consolidation:

Borrowers can consolidate their defaulted student loans into a new Direct Consolidation Loan with a repayment plan tied to their income. After obtaining a Consolidation Loan, the borrower gets a fresh start with a new loan.  As of July 1, 2010, Direct Consolidation Loans are the only type of federal consolidation loans available. All federal loan borrowers may obtain Direct Consolidation Loans. However, they must have at least one Federal Family Education Loan (FFEL) or Direct Loan Program Loan (Direct Loan) to qualify for consolidation.

There are drawbacks and limits to consolidation as a way out of default. Borrowers should understand that the balance will increase after consolidation due to the addition of collection fees. One of the most important limits is that defaulted Direct Consolidation Loans may not be reconsolidated. In effect, this means the borrower has only one shot at consolidating as a way out of default.

To obtain a Direct Consolidation Loan, borrowers in default either have to make three (3) consecutive reasonable and affordable payments based on their total financial circumstances or agree to select an income-contingent repayment plan (ICRP) or income based repayment (IBR) plan.

Payments Are Not Required to Get Out of Default Through Consolidation

Unfortunately, the Department of Education and Collection Agencies often claim inaccurately that all borrowers must make preliminary payments (sometimes three, sometimes six) in order to consolidate out of default.

This misinformation derives from the Department of Education’s monetary incentive system which motivates Collection Agencies to lie, cheat and steal from borrowers with limited means. The monetary incentive system disproportionately rewards Collections Agencies if borrowers make payments prior to consolidation. It is important to know that this is not the law and does not have to be followed in order to be successful at pursuing a consolidation to get out of default.

Furthermore, if a borrower applies directly to the Direct Loan Program for consolidation and does not use the Collection Agency as a middleperson, the agency will generally not earn any fee. There is no charge to obtain a Direct Consolidation Loan. Borrowers may apply by regular mail, on-line, or by phone under certain circumstances. Borrowers may request an application by calling the current toll-free number, 1-800-557-7392 or, for TDD, 1-800-557-7395. Borrowers can also apply for Direct Consolidation Loans on-line at 

https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.

The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability. The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

[1] 20 U.S.C. § 1087(a); 34 C.F.R. §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.

The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability. The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

[1] 20 U.S.C. § 1087(a); 34 C.F.R. §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).

Disability Discharge of Federal Student Loans

The borrower’s permanent and total disability is grounds for a student loan discharge. Borrowers with FFELs, Direct Loans, and Perkins loans are eligible for this discharge.[1] This includes consolidation loans.The definition of disability changed as of July 1, 2010. The new definition is less restrictive and is more favorable for borrowers because it allows discharges to be granted to borrowers who are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, can be expected to last for a continuous period of 60 months, or has lasted for a continuous period of 60 months.[2]

The borrower applies directly to the loan holder for a disability discharge. If the borrower has different loan holders, the borrower should submit a separate application to each loan holder.

In order to help ensure a more efficient application process, borrowers should follow these guidelines from the Department:

1. Be sure to sign the application. A photocopy must contain an original signature.
2. Separate applications must be submitted to each loan holder. Copies may be submitted. However, each copy must have an original borrower signature. Original physician signatures are not required on each copy.
3. The application must be signed by a doctor of medicine or osteopathy who is licenses to practice in the United States.
4. The doctor must complete the application.
5. Doctors should not use medical abbreviations or insurance codes on the application.
6. The doctor must provide more than a diagnosis. The doctor must also identify the medical condition and clearly and fully explain how the condition prevents the borrower from working and earning money.

The lender may continue collection activity until it receives the certification of disability. The borrower may request an administrative forbearance to stop collection activity during the review period.

It is important for borrowers to realize that the Department of Education has a very high rate of denials due to “medical review failures.” However, the denial is not tied to an actual medical review. Instead, this is a generic denial category that can mean anything from a missing license number to the physician forgetting to check a box on the application form. The Department of Education often sends a follow-up letter to physicians that require a relatively prompt response and failure of the physician to timely respond may lead to a medical review failure. Borrower should not assume that a denial based on a medical review failure is tied to an actual medical review.

The Department of Education has set up a Disability Discharge Loan Servicing Center. The center can be contacted by phone at 1-888-869-4169, by email at disability_discharge@acs-inc.com, or by regular mail at U.S. Department of Education Disability Discharge Loan Servicing Center, P.O. Box 5200, Greenville, TX 75403-5200. Hearing impaired individuals with access to TDD can call 1-888-636-6401.

If borrower obtains a discharge, the balance of the loan is discharged.[3]

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

[1] 20 U.S.C. § 1087(a); 34 C.F.R. §§ 674.61 (Perkins Loan), 682.402(c) (FFEL), 685.213 (Direct Loan).

[2] 34 C.F.R. § 682.200

[3] 34 C.F.R. § 682.402(c)(3)(ii).

Other Profession-Related Loan Cancellation Programs

The Department of Education administers a loan-forgiveness program for certain child care providers with FFELs or Direct Loans.[1] Under this program, borrowers who have received an associate’s or bachelor’s degree in early childhood education or child care and who are providing full-time child care services that serve certain low-income communities are eligible for forgiveness of up to 100% of their total eligible loans. Only loans made after October 7, 1998, qualify. In January 2004, the Department of Education published the application for this cancellation program.[2]

The 2008 HEA reauthorization law created a number of new job-related cancellation programs, including loan forgiveness for service in areas of national need and limited loan repayment for civil legal assistance attorneys. Under the civil repayment program, attorneys may be awarded up to $6,000 in repayment assistance in 2010 and may be prioritized to receive assistance in future years if Congress continues to fund the program.[3]

[1] See 67 Fed. Reg. 55385 (Aug. 29, 2002).
[2] U.S. Dep’t of Educ., Dear Colleague Letter GEN-04-01 (Jan. 2004). The form is available on the Department of Education’s website at www.ed.gov
[3] For requirements and application procedures, see 75 Fed. Reg. 38999 (July 7, 2010).

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102 (215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Other Profession-Related Loan Cancellation Programs

The Department of Education administers a loan-forgiveness program for certain child care providers with FFELs or Direct Loans.[1] Under this program, borrowers who have received an associate’s or bachelor’s degree in early childhood education or child care and who are providing full-time child care services that serve certain low-income communities are eligible for forgiveness of up to 100% of their total eligible loans. Only loans made after October 7, 1998, qualify. In January 2004, the Department of Education published the application for this cancellation program.[2]

The 2008 HEA reauthorization law created a number of new job-related cancellation programs, including loan forgiveness for service in areas of national need and limited loan repayment for civil legal assistance attorneys. Under the civil repayment program, attorneys may be awarded up to $6,000 in repayment assistance in 2010 and may be prioritized to receive assistance in future years if Congress continues to fund the program.[3]

[1] See 67 Fed. Reg. 55385 (Aug. 29, 2002).
[2] U.S. Dep’t of Educ., Dear Colleague Letter GEN-04-01 (Jan. 2004). The form is available on the Department of Education’s website at www.ed.gov
[3] For requirements and application procedures, see 75 Fed. Reg. 38999 (July 7, 2010).

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102 (215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Other Profession-Related Loan Cancellation Programs

The Department of Education administers a loan-forgiveness program for certain child care providers with FFELs or Direct Loans.[1] Under this program, borrowers who have received an associate’s or bachelor’s degree in early childhood education or child care and who are providing full-time child care services that serve certain low-income communities are eligible for forgiveness of up to 100% of their total eligible loans. Only loans made after October 7, 1998, qualify. In January 2004, the Department of Education published the application for this cancellation program.[2]

The 2008 HEA reauthorization law created a number of new job-related cancellation programs, including loan forgiveness for service in areas of national need and limited loan repayment for civil legal assistance attorneys. Under the civil repayment program, attorneys may be awarded up to $6,000 in repayment assistance in 2010 and may be prioritized to receive assistance in future years if Congress continues to fund the program.[3]

[1] See 67 Fed. Reg. 55385 (Aug. 29, 2002).
[2] U.S. Dep’t of Educ., Dear Colleague Letter GEN-04-01 (Jan. 2004). The form is available on the Department of Education’s website at www.ed.gov
[3] For requirements and application procedures, see 75 Fed. Reg. 38999 (July 7, 2010).

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102 (215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Perkins Loan Forgiveness Program

The Perkins Loan Forgiveness Program was the first to provide for cancellation of loans for teachers in low-income school districts.

A 2005 Second Circuit decision broadened the Perkins Loan Forgiveness Program to include numerous occupations related to teaching, public interest law and social work. Since the Second Circuit decision, the Department of Education has clarified its position in a "Dear Colleague letter" explaining that the program has indeed expanded to include numerous occupations that are considered socially desirable professions.

A short list of covered occupations include:

Full-time nurses or medical technicians;

Full-time law enforcement or correction officers;

Full-time staff members in the education component of Head Start;

Military service;

VISTA or Peace Corps volunteers;

Full-time fire fighters in local, state, or federal fire departments;

Full-time speech pathologists with master's degrees working in certain elementary or secondary schools;

Certain librarians working in certain schools;

Full-time attorneys employed in public or community defender organizations.

Borrowers must perform uninterrupted service for a specific length of time to qualify for a Perkins loan discharge. However, the Department of Education has waived the continuous service requirement for borrowers who are members of the military reserves or who are regular active duty members of the Armed Forces.

It is important to note that borrowers lose access to Perkins Loan Forgiveness Program if they consolidate their loans with "Direct Loans."
Read the following documents for more information:

De La Mota v. U.S. Dep't of Educ., 412 F. 3d 71 (2d Cir. 2005)

U.S. Dep't of Educ., Child or Family Service Loan Cancellation Benefit in the Federal Perkins Loan Program, Dear Colleague Letter GEN-05-15 (Oct. 19, 2005); 34 C.F.R. § 674.56(b).

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Perkins Loan Forgiveness Program

The Perkins Loan Forgiveness Program was the first to provide for cancellation of loans for teachers in low-income school districts.

A 2005 Second Circuit decision broadened the Perkins Loan Forgiveness Program to include numerous occupations related to teaching, public interest law and social work. Since the Second Circuit decision, the Department of Education has clarified its position in a "Dear Colleague letter" explaining that the program has indeed expanded to include numerous occupations that are considered socially desirable professions.

A short list of covered occupations include:

Full-time nurses or medical technicians;

Full-time law enforcement or correction officers;

Full-time staff members in the education component of Head Start;

Military service;

VISTA or Peace Corps volunteers;

Full-time fire fighters in local, state, or federal fire departments;

Full-time speech pathologists with master's degrees working in certain elementary or secondary schools;

Certain librarians working in certain schools;

Full-time attorneys employed in public or community defender organizations.

Borrowers must perform uninterrupted service for a specific length of time to qualify for a Perkins loan discharge. However, the Department of Education has waived the continuous service requirement for borrowers who are members of the military reserves or who are regular active duty members of the Armed Forces.

It is important to note that borrowers lose access to Perkins Loan Forgiveness Program if they consolidate their loans with "Direct Loans."
Read the following documents for more information:

De La Mota v. U.S. Dep't of Educ., 412 F. 3d 71 (2d Cir. 2005)

U.S. Dep't of Educ., Child or Family Service Loan Cancellation Benefit in the Federal Perkins Loan Program, Dear Colleague Letter GEN-05-15 (Oct. 19, 2005); 34 C.F.R. § 674.56(b).

Dunne Law Offices, P.C.
1500 John F. Kennedy Boulevard, Suite 200
Philadelphia, PA 19102
(215) 854-6342 (Office)
http://www.thephiladelphiabankruptcyattorney.com

Perkins Loan Forgiveness Program

The Perkins Loan Forgiveness Program was the first to provide for cancellation of loans for teachers in low-income school districts.

A 2005 Second Circuit decision broadened the Perkins Loan Forgiveness Program to include numerous occupations related to teaching, public interest law and social work. Since the Second Circuit decision, the Department of Education has clarified its position in a "Dear Colleague letter" explaining that the program has indeed expanded to include numerous occupations that are considered socially desirable professions.

A short list of covered occupations include:

Full-time nurses or medical technicians;

Full-time law enforcement or correction officers;

Full-time staff members in the education component of Head Start;

Military service;

VISTA or Peace Corps volunteers;

Full-time fire fighters in local, state, or federal fire departments;

Full-time speech pathologists with master's degrees working in certain elementary or secondary schools;

Certain librarians working in certain schools;

Full-time attorneys employed in public or community defender organizations.

Borrowers must perform uninterrupted service for a specific length of time to qualify for a Perkins loan discharge. However, the Department of Education has waived the continuous service requirement for borrowers who are members of the military reserves or who are regular active duty members of the Armed Forces.