In addition, these repayments can earn the debtor credit toward forgiveness of their loans. There are multiple programs pursuant to which a borrower can have their loans cancelled or forgiven ranging from five to 25 years. There are even options for borrowers to get out of default. All of these by-right options are limited when the debtor is in bankruptcy.
The Benefit of Court Programs
Recognizing this conundrum and labyrinth of issues facing student loan debtors in bankruptcy, a number of bankruptcy courts have adopted student loan management programs. These programs provide structure and transparency for all parties—borrowers, attorneys, courts and loan servicers—to engage in a consensual resolution of the student loan debt more easily and efficiently. No additional options or rights are created for the debtor. They are simply able to review and enroll in the same by-right, repayment plans and options that they would otherwise have the right to do outside bankruptcy.
Using a secure, online, portal further facilitates the process. Debtor attorneys can determine which options best suit their client’s needs and then submit the required federal applications directly to the servicer. The process starts with the debtor obtaining loan information directly from the government’s website—studentaid.gov. The file, known as the NSLDS, is a student loan data file maintained by the Department of Education which contains all relevant information about the debtor’s student loans including the type, amount and interest owed. The NSLDS can be downloaded in less than a minute and is the file-of-record containing the same information the government and its servicers use. The debtor’s attorney then uploads the NSLDS file to the portal and answers a few basic questions about the debtor and their family and income. The portal then generates a comprehensive report detailing the options and repayment plans available to the debtor.
Once the debtor and counsel have had a chance to review and select the desired course of action, a complete set of application materials are prepared for the debtor which are then submitted electronically through the portal and processed by the servicer. All parties have access to the portal which enables real-time access and transparency for all involved.
As of this writing, four U.S. bankruptcy courts have already adopted such programs. A student loan management program was adopted in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania with the goal of encouraging student loan resolutions between the lender and borrower. Attorneys with clients who participate in the program also receive a no-look fee of up to $1,500. There are also court-approved programs in the U.S. Bankruptcy Courts in the District of Vermont, Southern District of Florida and Middle District of Florida.
By accessing a student loan management program through Chapter 13 bankruptcy, debtors are able to repay their loans and work towards forgiveness while eliminating concerns from the trustee about payments. By reducing their monthly expenses, debtors have the ability to pay other unsecured creditors and work towards the “fresh start” that is intended from the bankruptcy process. In addition, debtor’s counsel is reimbursed for their efforts.
While the road through Chapter 13 bankruptcy may be tenuous for student loan debtors, court-based student loan management programs provide all the elements that are needed for them to access and successfully navigate the existing federal student loan repayment options.