December 13, 2018

About Jonathan Ginsberg

Jonathan Ginsberg has served the Atlanta area community as a personal bankruptcy and student loan debt management lawyer for over 25 years. Contact Jonathan for straight answers to difficult debt problems.

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Here are my most recent posts

What Can I Do About Private Student Loan Debt?

private student loan debt - drowningOne of the more vexing problems in my student loan practice arises from questions about private student loan debt. In my view, private student loans are just about the worst type of debt imaginable. With very limited exception, you cannot discharge them in bankruptcy and collection agencies often use very aggressive collection tactics.

Often collection agencies act even more aggressively than they would for general unsecured debt like credit cards because the bankruptcy option is most likely not available.

Generally student loan borrowers only turn to private student loans when they have exhausted their federal student loan money. When I speak to high school students and their parents I point out that if they are considering private loans to pay for college, that is a sign that the college they are considering is too expensive or not a practical choice because of the negatives associated with private loans. These negatives are magnified even further if the private student loan lender demanded a co-debtor, like a parent, spouse or sibling. [Read more…]

Student Loan Workout Should Precede IRS Workout (Usually)

IRS monsterHow should you prioritize your payments when you have both tax debts and student loan debts? According to attorney Shawn Wright, a Pittsburgh, PA lawyer who represents clients in tax matters, student loan workouts and bankruptcy, you should apply for a student loan workout first, and thereafter apply for an offer-in-compromise or installment agreement with the IRS.

As Shawn notes, the IRS’ “Fresh Start Initiative allows taxpayers to include student loan payments as approved expenses in an IRS workout budget. This is a change from prior policy. In other words, when you apply for an IRS settlement, you have to submit a budget. The IRS will only acknowledge reasonable and necessary budget items – anything else will be considered disposable income that you can use to pay the IRS.

As of May 21, 2012, student loan expenses may be included in an IRS settlement budget. Other expenses, like credit card debts and personal loan repayments cannot be claimed at all on an IRS settlement budget. Further, the IRS limits what you can claim as “necessary” in categories such as housing, transportation and utilities. [Read more…]

Loan Modification Help on the Horizon for Private Student Loan Borrowers?

struggling student loan borrowerWhen talking to potential clients seeking information about repayment options for student loans, one of the first questions I ask has to do with whether the student loans are government issued or government insured, or if the loans are private loans.

If the loans are government loans – owed or managed by the U.S. Department of Education, we have a variety of options set out in federal law. Although the rules are not consistent among the various types of federal loans, for the most part, we have the option of curing defaults, restructuring payments based on the borrower’s income, getting some or all of the loan forgiven based on the borrower’s employment, and otherwise avoiding wage garnishment or bank account levy.

Basically, the Department of Education offers many options to help put struggling student loan debtors back into non-defaulted payment status. The rules to effectuate this goal are not always clear or consistent but that is the goal.

Private student loans are another story. None of the borrower friendly payment modification or default cure provisions set out in federal law apply to private loans. In fact I would go so far as to say that private student loans are one of the worst financial moves you can make – the loans are generally not dischargeable in bankruptcy, lenders have no incentive to work with you, and high interest and penalties that apply to private loans could leave you in unmanageable debt for decades. [Read more…]

Expansion of PAYE Income Based Repayment Rules Not Likely to have much Impact

PAYE rules expandedYou may have heard that on June 9, 2014, President Obama signed an executive order expanding the PAYE (Pay-As-You-Earn) program. According to the President, this action is intended to “make student debt more affordable and manageable to repay.” But will this executive order really have much impact?

The PAYE program is one of several income based repayment options available to student loan borrowers. It uses a formula whereby a student loan borrower can modify the repayment terms of his loan and pay back that loan using a payment that does not exceed 10% of the borrower’s discretionary income. After 20 years of payments, any remaining indebtedness will be forgiven.

Currently PAYE is only available to new borrowers – students who graduated prior to 2013 do not qualify. Older graduates have other loan modification options available like the income based repayment plan which is similar to PAYE but caps payments at 15% of discretionary income and forgives the balance after 25 years of payment.

Under Obama’s executive order, PAYE will be available to all student loan borrowers, not just members of the class of 2013 and future graduates. The new PAYE eligibility begins in December, 2015, so older graduates will have to wait at least a year and a half to take advantage of these new rules. [Read more…]

Tax Consequences of Student Loan Debt Forgiveness

student loan 1099Student loan debtors who qualify for debt reduction or debt cancellation may save thousands or tens of thousands of dollars.  Are there tax consequences to these savings?

As you may know, the IRS and many states characterize forgiven debts as taxable ordinary income.  Creditors will send you a 1099 representing the amount of debt forgiveness.

Fortunately, the Internal Revenue Code contains an insolvency exclusion to forgiveness of debt income.  If you (the debtor) are balance sheet insolvent both before and after the cancellation of debt, the ordinary income from the canceled debt is excluded from taxable income to the extent of the insolvency.

IRS publication 4681 gives several examples about how the insolvency exception applies and if you read this publication you will see that the concepts can be somewhat confusing because you must consider your insolvency both prior to and after the forgiveness as well as the amount of the forgiveness.

Here are my recommendations:

  1. if you are expecting to complete a debt reduction or cancellation in a calendar year, consult with a tax advisor (a CPA or enrolled agent) to discuss possible tax consequences.  If the potential debt forgiveness is especially large, it would be wise to talk to a tax advisor a year or two prior to the forgiveness year so you can engage in tax planning
  2. if you are considering filing for bankruptcy during the tax year in which your student loans are being forgiven, make sure to advise your bankruptcy lawyer about the pending forgiveness.  It may be beneficial to wait until the next calendar year to file bankruptcy so as to preserve your insolvency exception

Many of the high volume tax preparers who advertise on TV may not be knowledgeable about student loan debt forgiveness or the insolvency exception or about bankruptcy implications.  Make sure to raise this issue and do not hesitate to get a second opinion.

Worst Case Scenarios for Private Student Loan Co-signers

worried student loan borrowerA recent U.S. News & World Report story about student loans contained a startling fact – more than 91% of private student loan borrowers took out private student loans with a co-signer.  In most cases, that co-signer is a parent.

What are the potential issues that could impact you if you are a co-signer? 1

First, you need to verify that the loan you co-signed for is a private student loan.  If you co-signed for a federal or federally guaranteed student loan, you will have additional protections.  This article focuses on private student loan co-signers only. [Read more…]

  1. Note the difference between a co-signer and a guarantor.  A co-signer’s obligation is exactly the same as the other co-signer, regardless of who is receiving the statements.  A guarantor, on the other hand, only becomes liable if the primary borrower goes into default.  See Wikipedia’s definition of co-signer here, and guarantor here.

What Part of Your Tuition Bill Actually Goes Towards Education?

leafy collge campusI ran across an interesting article about college tuition on the Credit.com blog.  Entitled The $7,000 Master’s Degree thats Scaring Colleges, personal finance writer Mitchell Weiss reports that Georgia Tech plans to offer a fully online master’s degree in computer science for $7,000 – roughly one-seventh the cost of an on-campus degree (i.e. around $50,000).

As an Atlanta resident and native I can tell you that Georgia Tech is considered one of the nation’s finest engineering and computer science universities and that its undergraduate programs are considered one of the top values in higher education, especially for Georgia residents who pay in-state tuition.  In other words, this is one of the top universities in the country offering a legitimate master’s degree online.

In a broader sense, however, Georgia Tech’s pricing model suggests that much of the cost of higher education arises from services ancillary to education.  If a “normal” computer science master’s degree costs $50,000 and the education component is $7,000, this means that $43,000 of that tuition covers administration, housing, student activities, construction and campus maintenance. [Read more…]

Strange and Awful Wage Garnishment Power of Student Loan Creditors

unique power of student loan creditorsAre you aware of the special dangers associated with student loan wage garnishments.  Unlike almost every other debt, student loan creditors can garnish your wages without first filing a lawsuit and proving their case in a state or federal court.

Congress issued this gift to the student loan industry several years ago when it authorized something called an administrative wage garnishment (AWG).

An AWG works as follows: if your federal or federally guaranteed student loan has gone into default, the lender (either the U.S. Department of Education or the guarantee agency) will send you a letter giving you a 30 day notice of pending wage garnishment.

This letter will advise you that within this 30 day notice period you can request an administrative hearing before a U.S. Department of Education hearing officer 1. You will not be surprised to learn that most of these AWG hearings result in a ruling in favor of the Department of Education. [Read more…]

  1. You have to request your hearing within 15 days if your loan is an FFEL loan.

Sloppy Accounting and Payment Processing Plague Private Student Loan Servicers

failure to apply extra student loan paymentIn the United States about 79% of student loans are either issued by the U.S. Department of Education or guaranteed by this agency. The remaining 21% are issued by private lenders 1  There was $157.8 billion of outstanding private student loans in Fiscal Year 2009]. Private student loans exist because federally issued or guaranteed loans have caps. For example, a direct federal loan (called a Stafford loan) has a cap of $2,000 per year for families who earn more than current income limits 2. If you attend an expensive private college, there may not be enough federal student loans (which can include Perkins and Plus loans as well) available to you and your only option will be private student loan lenders.

Unfortunately, private student loans do not include many of the borrower protection regulations that apply to government student loans. For example, if you go into default with your government issued or guaranteed student loans, you have unique options to cure that default and restructure your loans into a new payment plan based on your income.

In the case of a private student loan, if you go into default, you have no right to cure that default and you could find yourself facing lawsuits and wage garnishment.

In my student loan law practice, therefore, I have fewer options to offer my clients who are struggling with private student loans. There are some options, however – including Fair Debt Collection Practice Act violation suits, statutes of limitation and even bankruptcy. [Read more…]

  1. According to the U.S. Department of Education, the projected amount of outstanding federally issued or guaranteed student loans for Fiscal Year 2011 is  $745.5 billion.   About 8% of outstanding federal student loans are currently in default.
  2. Read more about the borrowing amount caps here.

Why is the Starting Balance on my Student Loan More than What I Borrowed?

interest added back into principalYou may be wondering why does my Stafford or Direct student loan statement show a higher principal balance than what I actually borrowed?   The reason your student loan payment seems so high most likely has to do with interest capitalization.

First, you need to understand how a Stafford loan works.  Stafford loans are federal student loans.  As if 2010, the federal government does not guarantee student loans; instead the federal government, through the U.S. Department of Education actually issues student loans.

Subsidized vs. Unsubsidized Student Loans

If you have a Stafford loan, therefore, it was issued prior to 2010 and will be classified as either subsidized or unsubsidized.    Stafford subsidized loans are based on financial need.  Stafford unsubsidized loans are not based on need, and are available to any student borrower.   Post 2010 Direct Loans also may be subsidized or unsubsidized.

If a Stafford or Direct loan is subsidized, this means that interest which accrues while you are in school (the in-school deferment) is paid by the federal government.

If your Stafford or Direct loan is unsubsidized, this means that interest accrues while you are in school.  Once the loan goes into payable status, this accrued interest is “capitalized” into the outstanding principal balance.

Obviously, therefore, you are better off financially with a subsidized Stafford or Direct loan.  Remember, however that subsidized loans are only available to people who have financial need, i.e. meet certain income requirements.  Further, the amount you can obtain as a subsidized loan is limited. [Read more…]