Many New Yorker debtors are stuck with large amounts of nondischargeable student loan debt. Fortunately, the health care law Congress passed in 2010 also eases the burden on student debtors. The Department of Education explains some of the changes. Here’s a summary.
Most dramatically, the law terminates the old FFELP (Federal Family Education Loan Program) that’s existed for decades. Under that program, the federal government guaranteed the loans banks made to students, promising to bail them out if defaults occurred. The FFELP was extraordinarily wasteful, and banks took advantage of the government by assessing as many fees on student borrowers as they could. Now, all federal student loans are made under the Direct Lending Program, meaning the government disburses the loans while allowing private sector banks to act as servicers.
Next, the law lowers the interest rates on federally subsidized student loans from 5.6% to 4.5%. Third, it increases Pell Grants to $36 billion and indexes the increases to the consumer price index starting in 2013. Fourth, the law gives an additional $2.25 billion to historically black colleges and universities minority-serving institutions.
The final most significant change the health care law makes is improving the government’s Income-Based Repayment program (IBR). After 2014, it reduces the student loan payment cap from 15% of discretionary income to only 10%, and the forgiveness period will be only 20 years instead of 25 years. The law also increases eligibility to those whose student loan debts have grown due to accrued interest. Lastly, the law eliminates the so-called “marriage penalty” and now allows married couples to file and pay for IBR-eligible loans jointly.
These developments are good news but they still don’t provide any relief for debtors who are ineligible for IBR or whose loans are deep in default. If you are having difficulties with your unsecured credit, an experienced New York bankruptcy attorney can help.
For more questions about student loan debt, credit card debt, bankruptcy, the automatic stay and effective strategies for dealing with foreclosure, please feel free to contact experienced Bankruptcy Automatic Stay Bruce Weiner for a free initial consultation.
