Hi Folks,

As we close out 2023, student loans have reared their ugly head after 3 years of Covid hiatus.  Unfortunately, what should have been an expected transition from forbearance to monthly installment payments is turning into a bureaucratic nightmare for many people.  This is causing some problematic outcomes that you should be aware of before you throw up your hands in surrender.

There have been widespread news reports of people trying to contact their student loan servicers and being left on hold for hours.  Even when you can get a hold of a live person, you are often given incorrect information, or conflicting information.  People acting in good faith are trying to set up auto-payment plans only to see those payments not happen and their student loans listed as “past due”.  There is really no other way to describe this situation other than sheer incompetence.

Not that it matters to you, but what happened in the past 3 years was that many of the student loan servicing companies laid off their experienced staff.  Nobody was paying student loans, and so they did not need large call centers with experienced people who could answer questions when nobody was calling.  For some bizarre reason, when they realized that the student loan forbearance period was coming to an end after Covid, they were caught flat footed, and they had to hire and train new people who do not always know the correct answers to your problem.

This has caused a predictable effect.  According to CNN, 9 million student loan borrowers missed their first payment.  According to multiple news outlets, nearly 40% of student loan borrowers have not resumed their monthly payments.

So, what are we to do?  First, whatever you do, please do not let your student loans go into default, unless you have absolutely no ability to pay.  Your options for income-based repayment plans, and other programs for relief are dramatically reduced if you let your student loans go into default. 

Second, as frustrating has it may be, you need to work closely with your student loan servicer.  Set up an online account.  Go to that web site at least once or twice a month to monitor what is happening.  Pay attention to any alerts that appear in your message box.  If there is something that does not make sense, take the time to be on hold and call your provider.  Don't expect the information that you receive to be accurate or consistent.  If the customer service representative tells you something that sounds too good to be true, get their name, and wait a few days and call back to see if another customer service representative tells you the same thing.

Third, if your income is very low and you do not anticipate it increasing over time, seek out the advice of an experienced Bankruptcy attorney.  For years, there were really no realistic options for discharging student loans in Bankruptcy because the standard for “undue hardship” was too high, but there has been new guidance from the Justice Department on which category of debtors may be eligible for relief.  This will not be easy, but an experienced Bankruptcy attorney can guide you through the process.

Discharging or modifying student loans in Bankruptcy will require an “adversary proceeding” which is a lawsuit filed in the Bankruptcy Court while you are in the Bankruptcy process.  You should expect there to be an expense associated with this.  The adversary lawsuit is not guaranteed of success.  Ultimately the Bankruptcy Judge will decide whether your claim for relief has merit, and they are looking to see 1) what your present income is, 2) what your future income is likely to be, 3) whether you can pay your student loans and maintain a minimal standard of living, and 4) whether you have made good faith efforts to pay your student loans in the past (hence my discussion above about not going into default).

Please keep in mind that a “minimal standard of living” is bare bones stuff.  They are looking for people who are retired, disabled, or unable to work.  Anything approximating a middle-class lifestyle (at this point) will not cut it, even if you are struggling to make the ends meet.

Finally, we are going into an election season, where all sorts of promises will be made by people hoping to get your votes.  Don't consider these promises as anything other than promises.  The truth is that unless there is a proper vote in Congress, approved by the President, and that passes Constitutional muster by the Supreme Court, we are stuck with the status quo.  By the way, it may sound old fashioned, but write a letter to your local Senator or Congress person demanding action on student loan relief.  The truth is that Congressional offices will assume that for every actual letter they receive, there are hundreds of their constituents with the same grievance who did not take the time to write an actual letter, so your effort will have an exponential effect on how they think and vote.

So, the bottom line is, do not be part of the 40% of people who are not paying their student loans.  Work with your student loan servicer even if is frustrating.  If you truly are struggling to pay your student loans and still maintain a basic living, seek out the advice of an experienced Bankruptcy attorney.  Until the laws change, we need to be proactive in tackling our student loan debt.