Waiting for Your Borrower Defense Claim to be Processed? You’re Not Alone.

Tens of thousands of borrowers have submitted so-called “borrower defense” claims to the Department of Education, alleging that their loans should be discharged because of misconduct by their schools.  The theory is that if your school mislead you, or was acting fraudulently, you shouldn’t have to pay the loans you took out to go to those schools.  Sounds sensible, right?  The problem is that many of these defense claims are just sitting there and aren’t being processed, all the while student borrowers end up at the whims of their servicer.   If you have been waiting for years for your borrower defense claim to be processed, know that you’re not alone.

In this post I’ll give some background on the situation and provide an update on some pending litigation to try to address these issues.   In my next post on the topic, I’ll go further into depth on what we do know about how the Department of Education is handling these claims.

To understand the big picture, we need to go back to 2015 when the closing of Corinthian Colleges and exposure of misconduct by other for-profit schools lead to a sky-rocketing number of these borrower defense applications.  (The Department of Education states that in the in the twenty years prior to Corinthian’s closing, they received a mere five borrower defense applications.  Since 2015, they have received over fifty thousand.).

As this explosion in the number of borrower defense claims happened, the Department of Education was simultaneously engaging in a rule-making process that was supposed to lay out the parameters for how these claims would be processed.  After pain-staking negotiation, the rules were finalized and set to go into effect in July 2017.  However, the DeVos Department of Education delayed the effective date of these rules, citing pending litigation.  Many people felt that this was instead an effort to get a second bite at the apple or, at the very least, shield for-profit universities from stricter Obama-era rules.

The Department of Education has now restarted the rule-making process.  Meanwhile, it  is sitting on the majority of the borrower defense applications it received.

The Department of Education’s version is that they have been improving the borrower defense process and that they have been steadily processing applications, particularly those associated with Corinthian College.  Again, I’ll go into further detail on this in my next post.

Nevertheless, tens of thousands of applications are still sitting there.  Lawyers at the New York Legal Assistance Group and the Harvard Predatory Loan Project initiated a lawsuit against the Department of Education, alleging that the Department was neglecting it duty to process these applications.  (Full disclosure that I briefly worked with these lawyers during law school).  The lawsuit is brought on behalf of two borrowers who attended Sanford-Brown institute.  Both borrowers have had borrower defense applications pending for 3 years.  In the meantime they have been subject to the collection whims of their servicers while interest continues to accumulate on the loans.  The lawsuit alleges that Sanford-Brown violated New York law by misleading its students.

The Department of Education has moved to dismiss the lawsuit, alleging that it has sovereign immunity and that the borrowers have not exhausted their administrative remedies.  The Department has also requested that the lawsuit be moved to arbitration.

I follow this lawsuit as part of my docket monitoring service for industry professionals.  If you wish for additional updates on this case, please contact my office.




Eligible Veterans Should Get Automatic Student Loan Discharges. Instead, They’ll Just Get a Notice.

Thousands of veterans should be eligible to have their student loans completely discharged with no tax liability — if only they knew about the program and applied.

For years, two government agencies — the VA and the Department of Education — have had the power to identify these individuals.  The VA had the list of veterans who either had a service-connected disability that is 100% disabling, or were totally disabled based on an individual unemployability rating.  Meanwhile, the Department of Education had the list of Americans who had taken out federal student loans through the National Student Loan Data System (NSLDS).

Cross-matching these lists would identify veterans who would be granted a Total and Permanent Disability Discharge if only they applied.  Efforts in 2016 to produce a similar list of individuals receiving social security disability who had student loans identified more than one hundred thousand such people.

Seems like a no-brainer that should have happened years ago, right?  Well, in a press release, the VA and the Department of Education finally announced that they would be teaming up to find these veterans and let them know about the benefits they are entitled to.

However, currently the plan is just to notify these borrowers.  In my experience, merely notifying borrowers will not be enough.  For a variety of reasons, the information may slip through the cracks or the veteran may not have the resources to follow up on it.

A bipartisan group of senators have recently advocated for an automatic discharge that would require no follow-up by the borrower.  This proposal is particularly compelling now that the 2018 tax bill eliminated the tax on disabled borrowers who had their forgiven student loan debt.

With this loophole gone, there is no downside to automatically discharging student loan debt for disabled veterans — except that the Department of Education will not get the marginal amount of money that these veterans continue to pay while they remain unaware they could have the loans discharged.

The announcement by the Department of Education and the VA is a step in the right direction, but it does not go far enough.


Why Paying Your Student Loans Will Look Different in 2019

The federal government has put out a call for bids to radically overhaul the student loan servicing program in 2019 with the goal of creating a unified website to pay and administer all federal student loans.   Sounds great, right?  The question is whether they can pull it off.

Even though the Federal government owns most of the federal student loans issues since 2010, any student loan borrower knows they have to go to their servicer — Nelnet, Great Lakes, Navient, etc. — to actually pay their loans.

This web of servicers can cause numerous problems.  For instance, some servicers offer different amenities even though all loans should be handled in the same way.  Great Lakes makes it easy to apply extra payments towards principal through their web platform, whereas other servicers may require a follow-up phone call.

Moreover, if you’ve been trying to get Public Service Loan Forgiveness, you know that your loans will be transferred to FedLoan Servicing, no matter what servicer you started out with.  FedLoan Servicing is the most difficult servicer to work with.  One major issue I see is that the transfer of student loans to FedLoans kicks the borrower out of their repayment plan, capitalizing interest and causing numerous headaches.

The idea of merging together the platforms of all servicers under the umbrella of a single government website is certainly appealing.  But as with any technological endeavor from the federal government (looking at you, Healthcare.gov), actually pulling it off will be quite a feat.

As highlighted by the Center for American Progress, which has been doing excellent reporting on this issue, it’s unclear whether the new system will improve accountability for the servicers or whether it will merely be a new, unified branding on top of the same old problems.  Additionally, the Office of Federal Student Aid (FSA), which would be administering the new platform, has already said that it may need to bring on additional expertise to coordinate and manage the program.

Everything is in the early stages at this point and it will be interesting to see what happens as the bidding process goes forward.  Clearly FSA and the Department of Education can see that the system needs an overhaul.  The question is whether the cure will be worse than the disease.


The Definitive Yale/Harvard/Stanford LRAP Comparison

I had the immense privilege of going to Stanford Law School.  When I began to be known among my friend group as knowledgable on student loans, I started to get requests for student loan consultations from other SLS alums as well as our peers at Harvard Law School and Yale Law School.  This has given me an on-the-ground insight into the three schools’ LRAP programs, which are an immense draw for students thinking of pursing a public interest career.

Understanding the different LRAP programs is fairly daunting for many admitted students and there is a lot of information to sort through.  This post aims to compare the most important issues that I see arise for alumni based on the current program implemented at each school (at Yale, for instance, the program may differ depending on your graduation year).  If you have other concerns about the LRAP programs, please let me know and I will supplement this post as best I can.

Of course, anybody in the position of choosing between these programs is already quite lucky.  Each one of these is substantially more generous than any other LRAP program out there.  As we get into the weeds, please keep in mind that I know having to compare these programs is a problem for only a few lucky people.

Eligible Employment

To enroll in LRAP at each school you must have full-time qualifying employment.  Qualifying jobs differ across the schools

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Stanford excludes academic jobs such as LRW positions from LRAP, whereas Yale and Harvard do not.  Clinical positions should qualify under all three plans.

Award amount

How much you will get under an LRAP program is a function of (1) your eligible loans; (2) the payment plan the school calculates for your eligible loans; and (3) your expected contribution.  We tackle each of these in turn.

(1) Eligible Loans

Generally speaking the three programs cover the following loans:

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(2) Payment Plan

How much money you get through LRAP depends on how much the school thinks you should have to pay every month.  Each school calculates this monthly payment amount a little bit differently.

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Because Harvard always bases its award on the plan you are actually enrolled in, if you are in a plan with a lower monthly amount than the 10-year standard, your award will decrease accordingly.  This can hurt alums who have to make a substantial contribution on their own.

Yale makes up its own numbers.  It artificially calculates a non-existent 15-year fixed repayment plan and gives you an award based on that monthly amount for the first 5 years.  In the second 5 years of the 10-year LRAP program, it calculates a 5-year repayment plan to pay off your remaining balance.  In other words, Yale’s award will most likely be quite a bit lower than either Harvard’s or Stanford’s for the first 5 years.

(3) Expected contribution

Once your school has calculated your expected monthly payment, the school then calculates how much it expects you to contribute.  Each school expects you to contribute a particular amount based on a percentage of your adjusted or gross income.  Here are the calculation tables according to each school’s program handbook:

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Which looks a little bit like this side-by-side:

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Harvard starts out expecting a much higher contribution.  Yale and Stanford start neck-and-neck, but then Yale’s program expects marginally less at higher income levels.

Your actual LRAP award will be the total expected amount minus your personal contribution.

Compensation for Tax Liability in the Private Sector 

One issue I see come up often is the effect of employment at a private-sector employer.  Alumni who do not work for a 501(c)(3) or the government will be taxed on the LRAP income their receive.  Stanford and Harvard try to offset this tax liability by increasing the award.  Yale does not.

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Transition between jobs

Luckily each program gives alums some grace period when transitioning between jobs. Harvard’s program is slightly less generous on this front, but all three programs offer some cushion.

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Clerkship Loans 

Many HLS/SLS/YLS students hoping to take advantage of LRAP programs may take 1-2 years to clerk and then hope to transition to public interest employment.  Harvard and Stanford prohibit using LRAP money to cover loans if a student is going to private-sector (i.e. firm) employment afterwards.  However, both will offer loans to students that will then be forgiven if the student goes from the clerkship to eligible public interest employment.

YLS alums can use their LRAP for clerkships, but the LRAP money is not actually forgiven.  Instead, that money is yet another loan that is added to the borrowers accumulated debt.  After the clerkship, if a YLS alum enters qualifying employment, the clerkship loan will be included in the debts to be paid off over the course of participation in the program.

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Spousal Income 

Last but not least, spousal income.  Stanford and Harvard have a straight forward approach.  They take greater of (a) his or her individual income; or (b) half the joint income.

Yale, on the other hand, will consider the joint income of the borrowers minus the spouse’s own education loan debt payments and minus $40,000.  This can hit borrowers whose spouses have higher incomes particularly hard.  (However, if both spouses are enrolled in LRAP, Yale consider’s half the joint income).


While I may be biased, I think the bottom line is that SLS has the best LRAP plan.

Harvard’s program expects a relatively high contribution early on and has less flexibility on repayment plans.

While Yale has an immense amount of employment flexibility, it does not provide the additional tax benefit to private-sector employees that SLS and HLS students get.  Additionally, Yale’s clerkship program and 15-year/5-year amortization schedule, clerkship loan program, and treatment of spousal income is not as generous as Stanford’s and hits young alumni particularly hard.



Student Loan Repayment Plan – Part 6, RePAYE

We have covered PAYE and IBR and now we turn to Revised Pay As Your Earn or RePAYE 

1. Percentage of discretionary income owed over the course of the year: 10% of your discretionary income.  (If you don’t remember how to calculate discretionary income, check out the original post on IDR plans).  There is no cap on RePAYE, so even if 10% of your discretionary income is over the 10-year standard repayment plan, you will not be kicked out of the program.

2. Eligible loans

Any Direct Loan made to an eligible borrower is eligible for the RePAYE Program except for: (1) a defaulted loan, (2) a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower, (3) or a Direct Consolidation Loan or Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower.

Perkins loans or FFEL loans are eligible if consolidated into a Direct Loan.  However, take care not to consolidate a Parent loan along with them.  Consolidating a Parent loan taints the entire consolidation and makes it ineligible.

3. Eligible borrowers


Any borrower with eligible federal student loans can make payments under this plan.

4. Forgiveness opportunities

Much like under PAYE and IBR, there is an opportunity to have your balance forgiven, regardless of your employment.  This differs by the purpose of the loans.  If you took out loans for undergraduate study only, the balance will be forgiven in 20 years.  If you took out loans for graduate or professional school, the balance will be forgiven in 25 years.

If you are eligible for Public Service Loan Forgiveness (for which RePAYE is a qualified plan), your loans could be forgiven after 120 payments or 10 years.

5. How the plan handles spousal income

Regardless of whether you file separately or jointly, RePAYE considers you and your spouse’s income jointly.   This makes RePAYE distinct from IBR and PAYE where filing separately allows your servicer to look at you and your spouse’s income separately.

6. Interest benefits

RePAYE has a more substantial interest subsidy if you end up with a low enough payment that you do not pay off the interest that accrues ever month.  For subsidized loans, the government will pay the full amount of unpaid accruing interest for the first 3 years and 50% of the difference after that.  For unsubsidized loans, the government will pay 50% of the difference throughout the process.  By comparison, the IBR and PAYE programs do not have an interest benefit for unsubsidized loans.

Prosper Act, Part 2: Repayment Plans

As we discussed in Part 1, the Prosper Act is the biggest potential change to federal student loans in years.  The Prosper Act would create the Federal ONE loan program to replace the current Direct Loan program.  The Federal ONE program would drastically change the repayment plans available.

Currently Direct federal loans have a variety of repayment plans available — fixed and graduated balance-driven plans as well as a variety of income-driven plans like IBR, PAYE and REPAYE.

Under the Federal ONE program, there would be only 3 plans available:

  • The standard 10-year fixed repayment plan
  • One income-driven repayment plan
  • A fixed-rate repayment plan with an extended time after consolidation.

The Standard 10-year fixed repayment plan should be familiar to any federal borrower and is the backbone of the current repayment process.  Its terms are not changed under the Prosper Act.

However, the new income-driven plan has several substantial changes:

  • Borrowers would have to pay 15% of their discretionary income, an increase for many borrowers who qualify for current IDR plans that ask for 10% of their discretionary income.
  • The new minimum is $25/month, though this can be temporarily reduced to $5 under certain circumstances
  • There would be no forgiveness after 20 or 25 years, as currently exists under the IDR plans.  Instead, the balance would only be forgiven once the borrower had paid enough to cover the principal and interest the borrower would have paid if they’d entered the 10-year standard repayment plan
  • There is currently no public service loan forgiveness written into the plan

The extended fixed-rate repayment for consolidated loans allows for longer repayment terms under the following schedule.

< $7,500: 10 years
$7,500-$10,000: 12 years
$10,000-$20,000: 15 years
$20,000-$40,000: 20 years
$40,000-$60,000: 25 years
$60,000: 30 years

The decrease in options will certainly simplify the repayment landscape for Federal ONE loans. Notably it will not simplify the options for current Direct Loan borrowers who, as the bill is currently written, will be grandfathered into the Direct Loan plans. However, the more limited options remove affordable alternatives that decrease the cohort default rate.

Prosper Act, Part 1: Loan Programs

The biggest potential change to federal student loan policy in years, — The Prosper Act — is out of committee and could go up for a vote before the full House in the coming months.  This is Part 1 in a series of deep dives on the effect of the Prosper Act.  Today we will start with a summary of the new student loan program.

If you’re a devoted reader of this blog, or just a student loan wonk, you’ll know that there have been two major federal student loan programs: The Federal Family Education Loan (FFEL) Program and the Direct Loan Program.

Until the FFEL Program was sunsetted on July 1, 2010, the program provided for private lenders to issue federally-backed student loans.  Millions of dollars worth of FFEL loans are still on the books of borrowers all over the country.

Since 2010, most borrowers get their loans under the Direct Loan program, where the Department of Education funds and issues the loans rather than private lenders.

The Prosper Act would sunset the Direct Loan Program and replace it with the Federal ONE Loan Program.   

Since the Perkins program already expired in September 2017, Federal ONE Loan would be the main lending program if the Prosper Act passed.  Any new borrowers after June 30, 2019 would be issued Federal ONE loans, not Direct Loans.  Certain borrowers, such as those already enrolled in a program, would be grandfathered into Direct Loans until September 30, 2024 at the latest.

So what will a Federal ONE loan look like? It will be issued by the Department of Education — much like the Direct Loan — and will have similar interest rate caps based on the 10-year Treasury plus a spread.

The Federal ONE loan will impose annual caps on borrowing for graduate students and parents based on hard limits rather than the cost of attendance, which is currently used to create a cap under the Direct Loan program.  For instance, Parent loans will be capped at $12,500 annually rather than whatever is needed to meet the cost of attendance.

The biggest change will be in the repayment plans available.  We’ll cover that in the next post.