Get Out of Debt Guy, an online debt counseling site operated by Steve Rhode, recently received a request for advice from Rose, a graduate of St. George University Medical School. Rose now owes more than half a million dollars in student loans.
Rose said the quality of her education was fine but that the medical school misrepresented the cost. School officials told her she could do clinical rotations in her home state of Connecticut. In fact, she was required to do them in five different states, which substantially increased the cost of her studies.
Steve gave Rose some good advice. First, he advised her to file a Borrower Defense to Repayment application with the Department of Education (DOE). If the Department concludes she was a victim of misrepresentation, Rose might get some or all of her federal student loans forgiven.
Rose's student debt history is somewhat complicated. She has three loans through Navient, two Stafford loans, and one private loan. Steve advised her to obtain the services of a knowledgeable student-debt attorney who could create a comprehensive solution for all her debt.
Rose's chances of getting debt relief through a borrower defense application are much better under the Biden administration than the previous presidential administration.
Betsy DeVos, President Trump's Education Secretary, was highly hostile to borrower defense claims. In contrast, Biden's Department of Education (DOE)has forgiven $6 billion in student debt owed by 200,000 borrowers who filed fraud or misrepresentation claims against their schools. Indeed, as Steve pointed out, DOE sent Roses' medical school a Notice of Penalty Offenses about a year ago.
Rose might have another option for getting her student debt under control. DOE is preparing a new income-based repayment plan (IBRP). If enacted, student borrowers could pay as little as 5 percent of their discretionary income--without regard to how much they borrowed. Moreover, the threshold for determining discretionary income will be 225 percent of the borrower's poverty-level income--up from 150 percent under current IBRPs.
Adam Looney, writing for the Brookings Institution, explained the new IBRP and its impact on borrowers with high levels of graduate-school debt.
[I]ncreases in the generosity of [new] IDR parameters primarily benefit higher-income borrowers with high debt levels. Per CBO estimates, reducing the percentage of income borrowers pay (e.g. from 10% to 5%) and increasing the threshold that defines discretionary income (e.g. from 150% to 225% of poverty) benefits graduate borrowers three times as much as it benefits undergraduate borrowers.
If the Biden administration's munificent new IBRP is enacted, many student debtors will repay only about 50 percent of what they borrowed.
That will be a hell of a deal for people like Rose, who borrowed heavily to fund their graduate studies.
For taxpayers, however, the deal is not so good. They will wind up subsidizing people who racked up enormous debt to get a graduate education.
|St. George Medical School: Kinda pricey