I know it sounds like we have been down this road before, but the Secretary of Education, Arne Duncan, in his final days in office has announced another repayment plan to reduce the burden of student loans called REPAYE.
According to government estimates, over 41 million current and former students owe more than 1.2 trillion in student loans. That amount of debt is second only to mortgage debt in the United States. Moreover, some 7 million former students are currently in default in 2014, according to the Economist. A financial crisis waiting to happen!
REPAYE is the newest attempt by the Department of Education to shape a repayment plan that can reduce the student loan default rate. The new plan allows a borrower to repay only 10% of his or her discretionary income. Moreover, the new plan is open to all borrowers, regardless of when the student loans were taken or repayment status. Until now, the best repayment plans were reserved for borrowers who took loans in the last 8 years.
Additionally, the Department of Education has finalized regulations that limit fees charged by schools and lenders, and prevent some lender abuses.
Although this is a good step forward, Congress needs to act. The current law makes it too easy for students to take out excessive loans, far in excess of his or her ability to repay, and limits borrowers rights against creditors. Student loan lenders can garnish wages, levy assets, and seize tax refunds without court action. Student loans can rarely be discharged in Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Borrowers have almost no rights!
Until pigs fly, I would recommend that all individuals with student loans examine all repayment options, including REPAYE, income based repayment, and income contingent repayment plans at the Department of Education's website. Whatever you do, don't just ignore it!
If you want to consult with one of Croke 7 Croke, S.C.'s knowledgeable attorneys about discharging your student loans in Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, contact us or call us at (414) 539-6184.