Showing posts with label pause on student loan payments. Show all posts
Showing posts with label pause on student loan payments. Show all posts

Wednesday, October 20, 2021

Take this student loan and shove it: Will student debtors start making payments on their college loans when the government's payment holiday ends?

When we go on vacation, most of us sleep late, basking in the luxury of rising in the morning whenever we wish.

 Then our vacation ends, and we have to set our alarm clock again. And we find it damned difficult to pop out of bed at 6 AM to get to work on time.

 Something like that will happen when the U.S. Department of Education ends its pause on student loan payments. Student debtors enjoyed a grace period on their loan obligations during the COVID pandemic. They could skip their monthly student loan payments without penalty and spend that extra cash on other things—a new car, maybe.

 Millions of student borrowers benefited from this loan-payment holiday, but nobody knows how many will start making monthly payments again when the holiday comes to an end in February.

According to Politico, Education Department officials have instructed loan services to create a "safety net" for borrowers for the first three months after payment obligations begin:

 Borrowers who miss a payment during the initial 90-day period will not take a hit on their credit reports. Those borrowers will instead be automatically placed in a forbearance and be still considered current on their loans.

Student borrowers will appreciate the safety net, but will they start making their monthly loan payments again when the government's loan-payment pause finally ends?

Even before the pandemic, the default rate on student loans was considerably higher than the default rate on credit cards and car loans.

 And this pattern makes sense. Overburdened debtors who stop making car payments lose their cars. If they quit paying on their credit card balances, their cards get canceled.

 But if student-loan debtors stop making payments on their student loans, nothing happens--at least not immediately. 

 predict that student loan defaults will spike upward this spring. Millions of student-loan debtors got permission to stop making payments in the spring of 2020, and they will find it challenging to start writing those monthly payments again, even when they are legally obligated to do so. 

To paraphrase a great country singer, I think many college debtors will take their cue from Johnny Paycheck and tell the Department of Education to take their student loans and shove 'em.












Tuesday, September 7, 2021

Department of Education pauses collection efforts against student-loan debtors: Guaranty agencies garnish wages anyway

In response to the COVID pandemic, the Department of Education allowed student-loan debtors to skip their monthly loan payments without penalty until September 30, 2021.  That pause was recently extended to January 30, 2022. 

Thanks to the Department's forbearance, millions of college-loan borrowers are enjoying a respite from making loan payments, knowing that DOE will not charge interest and penalties during this grace period and that their wages will not be garnished due to nonpayment. 

But guess what? Loan guaranty agencies continued garnishing the wages of student-loan borrowers despite the federal moratorium.  According to the Student Borrower Protection Center, the guarantee agencies garnished $27.2 million in May 2021 and $12.9 million in June 2021.

Will student borrowers recover these lost wages? Probably. But it will probably take a long time. After all, the Department of Education didn't forgive all student loans taken out by people who were defrauded by ITT Tech until five years after the for-profit college filed for bankruptcy.

The federal student loan program has enormous problems, and some of them will be difficult to fix. But surely, the Department of Education can require the loan guarantee agencies to abide by Department policy and the law.

But apparently, the guaranty agencies think they are above the law. In 2016, Educational Credit Management was assessed punitive damages for repeatedly garnishing the wages of a bankrupt student debtor in violation of the Bankruptcy Code. 

In an earlier case, ECMC was sanctioned for violating the Bankruptcy Code by collecting on a debt discharged in bankruptcy. 

Perhaps, you might conclude, the guaranty agencies inadvertently violate the law because they don't have the financial resources they need to keep track of their legal obligations. But that conclusion would be incorrect. According to a report issued by the New Century Foundation in 2016, Educational Credit Management, a nonprofit corporation, had more than $1 billion in nonrestricted assets.

Congress has a lot to do to clean up the student-loan mess, but it might start by holding hearings to examine the practices of the guaranty agencies.  Congress might begin by asking why some of the guaranty agencies are so rich. It might also inquire into the agencies' attorney fees the agencies run up chasing distressed student-loan debtors into the bankruptcy courts. 

Finally, Congress might look into how much the guaranty agencies are paying their senior management.  More than ten years ago, Bloomberg reported that the current CEO of ECMC was making more than $1 million a year.  What do you think ECMC's current CEO makes?  My guess--somewhere in the high seven figures. 

We don't need no stinkin' pause on student-loan collections.