From the late 1990s until recently, struggling student loan debtors had few options for handling their onerous debts. Because bankruptcy was generally unavailable, most of them placed their loans on hardship deferments until they found paying work. The interest payments would balloon, and they would fall further behind. For some, it would be lifelong debt. Starting in 2009, though, things changed: The federal government’s income-based repayment (IBR) program came online, and recent graduates could significantly reduce their monthly payments and obtain forgiveness after 25 years. Over the next few years, all debtors with federal loans (but not Parent PLUS loans) became eligible, monthly payments were reduced even more, and the forgiveness period was cut to only 20 years. Enrollment in IBR has swollen.
And then last March they were all kicked off the program, as reported by The Chronicle of Higher Education.
Okay, not all of them, just 57 percent of the 700,000 people who enrolled in 2014. What happened?
According to the Chronicle they failed to “certify” their incomes by the deadline, which is set by debtors’ IBR enrollment dates. Certification is crucial for debtors because it provides the Department of Education with the income upon which to base the monthly payments. The article identifies the innocuousness of the renewal documentation as a culprit. Apparently, many debtors didn’t heed the warnings because the notices weren’t clear enough for them, so they treated them like junk mail.
Other reasons might exist because IBR is not as airtight as it should be. For one, debtors who are self-employed have to put in more effort to establish their incomes. Another class of debtor, contract workers, also faces significantly higher burdens because when their projects end, they are neither laid off nor fired. The system is designed with the belief that debtors will obtain salaried positions with stable incomes. Instead, with underemployment still common, many debtors struggle to find work.
The consequences of not returning the certification documents on time are quite dire. Generally, debtors will be thrown onto a standard 10-year repayment plan, which, for anyone with very high debts, is ruinous. According to the Chronicle, only one-third of the debtors with direct loans from the government who missed the deadline re-enrolled onto IBR. Another third went into a hardship-related forbearance, and 15 percent went delinquent.
While there are proposals in Congress to streamline IBR, like automatically enrolling debtors into the system and running it through the payroll tax system, it’s still touch-and-go for many debtors to remain in the program.
The Chronicle article can be found here.
If you’ve fallen off of IBR through no fault of your own, then you might need to talk to an experienced New York bankruptcy lawyer. A chapter 7 filing can discharge other debts and prevent collections on your student loans.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy lawyers near me Bruce Weiner for a free initial consultation.