You Can’t Take It with You

Financial Aid PLPFinancial Aid Office

• Discharge of Loans for Death • Discharge of Loans for Total and Permanent

Disability• Discharge of Loans in Bankruptcy• Income-Based Repayment • Federal Student Loan Forgiveness• Public Loan Forgiveness

Discharge of Federal Student Loans

***Guaranteed with Federal Loans***• Types of Loans

– Stafford Loans: if you die– Graduate Plus Loans: if you die– Perkins: if you die– Parent Plus Loans: if the parent or the student dies– Private loans based on terms and conditions of loan

• Application: certified copy of death certificate to school (Perkins) or loan servicer (DL loans)

Death Discharge

• Available for Federal Student Loans– Private loans: based on terms and conditions of loans– No formal process for private loans

• Required: borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that:– Can be expected to result in death– Has last for a continuous period of not less than 60 months– Can be expected to last for a continuous period of not less than 60 months– Has been determined by the VA to make up unemployable due to a service-

connected disability

* Substantial gainful activity means a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.

Total and Permanent Disability (TPD)

• Complete the TPD Discharge application– Includes Physician Certification that documents medical

diagnosis and limitations on daily living– Application goes to each loan servicer

• Post-Discharge Monitoring Period– If granted, you will be monitored for 3 years– You will be ineligible for new student loans– What is monitored:

• changes in income (increase above federal poverty line for borrower)

• changes in disability (no longer have qualifying disability)

TPD Application

• Before 3-year monitoring period– Discharge is reversed, old loans are back– Free to take new loans

• After the 3-year monitoring period– Statement from physician that you are able to

engage in substantial gainful activity– Sign statement acknowledging new loans cannot be

discharged for same disability or any other disability that exists when new loans are authorized

Future Eligibility for Student Loans

• Adversarial proceeding that requires student to prove that repaying their loans would cause an undue hardship on you and your dependents

Problem: no legislative definition on what students had to prove that their financial hardship is undueBrunner test officially adopted in 9 circuits: 3-prong test:

– Not able to maintain a minimalstandard of living (current ability to pay)

– Evidence of hardship continuing through repayment period (future ability)

– Good-faith effort to repay loan before bankruptcy (i.e. repaymentfor at least 5 years)

(Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

Discharge in Bankruptcy

• One study showed success 40% of discharge requests– 3-prong test is burdensome and inconsistently applied– 99.9% of students in bankruptcy do not request a discharge

• Successful:– Lender did not dispute discharge until after case concluded– Chances for discharge are higher if:

• Student was not employed during bankruptcy and• Student has a medical hardship and• Student had a low annual income before the bankruptcy filing

• Unsuccessful:– Cases where the Court expect student to find higher-paying work– Student did not try IBR– Students unable to provide clear proof of continuing hardship

• Courts give students “windows of opportunity” to obtain “meaningful employment”

– Window is generally 6 months to several years– Discharge is in limbo during that window

Current Court Cases

• Alternative to TPD or Bankruptcy• Sometimes used as administrative relief negotiated in

bankruptcy • Available for Stafford, Graduate Plus loans, Perkins

loans (if consolidated into DL loans)– Payments are capped

• Calculated annually• Set at 15% of discretionary income (set by AGI & family)• Payments made for 25 years• Payment can be as low as $0• Borrower is responsible for ALL accrued interest if student is no

longer eligible for IBR• Discharge of any unpaid balance after 25 or 10 years

Income-Based Repayment (IBR)

IBR or Income-Contingent Repayment Program– Any balance of capitalized interest and principle

after 25 years • Discharge amount will be taxable (current law)

– Any balance of capitalized interest and principle after 10 years if working in public service

• Discharge amount will not be taxable (current law)

Federal Student Loan Forgiveness

• What: Discharge of Direct Loans– DL Loans including Grad Plus loans– Perkins loans, must be consolidated with DL– Rehabilitated defaulted loans – No FFEL loans: consolidate FFEL loans with DL

• When: After 120 qualifying monthly payments– Qualifying payments need not be consecutive

• Qualifying payments: made while employed FT by a public service organization– Qualifying employment need not be consecutive– Excluded: time spent in deferment or forbearance– Included: when calculated payment is zero

• Pair with: IBR; ICR; Standard Repayment Plan; any other Direct Loan repayment plan

Public Service Loan Forgiveness

• Required: FT public service job with PSLF eligible employer• PSLF eligible employers:

• Public sector employers• Federal, state, local, or tribal agency or entity

• Private non-profit employers that is 501(c)(3)• Except: partisan political organizations, labor unions, • Except: organizations engaged in religious activities

• If your job duties are related to religious instruction, worship services, or any form of proselytizing

• So: individuals working at religiously-affiliated non-profit organizations who perform at least 30 hours of non-religious activities are eligible for PSLF

• Private employer: if it is non-profit, is not an excluded group, and provides one or more public services

• Examples: military, law enforcement, public interest, early childhood, public health, education

Public Service Loan Forgiveness

Our office is available, even after graduation!

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