Are you deep in student loan debt and struggling? Today we have some good news to report for those with federal student loans who are stressed because they are behind on payments. The Department of Education has announced new regulations to help troubled borrowers avoid default and once there, to claw their way out. While the rules were announced a few days ago, they won’t go into effect until July 2014, but hey – good news is good news…
Collections Issues Addressed
One of the issues with trying to rehabilitate your past-due student loans is the shenanigans of private collections agencies under contract with the government to deal with debtors. Rather than informing struggling borrowers that they had more affordable payment options available, agencies would try and force debtors to pay higher payments in order to increase their commissions on the collection efforts.
But now, the new regulations require collection agencies to offer payments equivalent to what would be available under Income Based Repayment (IBR) for the required nine payments to rehabilitate most loans. This would cap rehabilitation payments at 15% of discretionary income, where before it was much higher and tended to be based on a percentage of debt owed rather than taking income into account.
Ruling: A big win for borrowers to help rehabilitate loans!
Making Forbearance Easier
For those that are behind nine or more monthly payments on their student loans, an in-writing request was required to get forbearance to allow time to get their finances sorted or apply for more affordable repayment options. Under the new regulations, an oral request to be placed into forbearance status is now allowed to help fast track the process of getting temporary relief on loans.
However, the borrower will have to follow up with a written request within 120 days to have the forbearance extended. Additionally, in the interim period, borrowers in forbearance will be sent written information about what forbearance means, the consequences of being in forbearance (including accruing interest), information on how to get out of forbearance and info on repayment plans.
Ruling: When relief is made more convenient and more information is provided, it’s a boon for borrowers!
Wage Garnishment Changes
One of the concerns with student loans going into default is the threat of wage garnishment. If you are delinquent on private debts, creditors have to go through a court process to be able to garnish your wages. With federal student loans, there is no such luxury. The government can take as much as 15% of your check with little prior notice or opportunity to fight back.
New regulations will offer enhanced rights to challenge a garnishment, the right to argue the amount owed, amount of garnishment or appeal the garnishment based on financial hardship that would result. Lower wage garnishments may be requested and wage garnishments will end after five payments made under the new rehabilitation process mentioned above.
Ruling: More due process is good due process and a limit on the number of payments taken is good news for cash strapped borrowers in default!
Don’t Let Your Loans Get to the Point of Default!
We wrote Friday about how to keep your student loans from going into default. Obviously, preventing default is preferable to coping with default once you’re in it. Check out these tips for more information on salvaging your loans. For those that are already in default or are teetering on the precipice, these new federal regulations offer some hope for future financial relief.
To help deal with your student loans, sign up for Tuition.io’s free student loan management tool to track and optimize your debt. Also check out our Student Loan Help Center for a wealth of information and How To guides on getting help with your loans.