February 19, 2020

Loan Restructure

The biggest concern expressed by our clients has to do with monthly payments.  This is especially true if you have more than one student loan.  Unfortunately, no one told you as an 18 year old that all those forms you were signing would turn into a $650 or $800 per month payment or that your student loan payment would eat up half or more of your take home pay.

You have probably read in the newspaper that college tuition costs have risen faster than wages.   Now that you are in the real world, the practical problem of paying student loans arrives in your mailbox every month.

Fortunately, there are solutions.  In our experience, income based solutions usually offer the most “bang for the buck,” but there are balance based solutions as well.  These solutions apply to U.S. Department of Education owned or guaranteed loans only.  Restructure of private loans, when it does happen, operates on a case by case basis.

Balance Based Solutions

Since we do not advise or participate in balance based solutions very often, we will not spend a lot of time on these options, but for sake of completeness, here they are:

Ten Year Standard Payment – this is the default option offered by the U.S. Dept. of Education.  In a standard repayment, you send in a set payment for up to 10 years.

Graduated Payment – with this option, you pay your loans off in 10 years but start with a lower payment that adjusts upward every two years.  This program is designed for a borrower who expects to see steady increases in salary over the next ten years.

Extended Payment – this option provides for a level payment for a period of up to 25 years.  This option is only available to borrowers with a balance exceeding $30,000.

Extended Graduated Payment – this option works like the extended payment plan for borrowers with a balance of $30,000 or more.  Like the regular graduated payment, the monthly payment increases every two years.

We sometimes use balance based solutions for short periods of time – for example, some of the loan forgiveness programs require a borrower to work at a certain type of job for 5 or 10 years.  We may use a balanced based plan while we are waiting for our client to reach a certain time goal.

Income Based Repayment Plans

Income based repayment plans are our most popular student loan management and restructure solutions.  This is because these plans often allow us to reduce your monthly payment and reduce the total amount you pay on your student loans.   Note that you can only enter into an income based repayment plan if you are in good standing (i.e., not in default).  If you are in default, we will submit a proposed income based repayment plan at the same time as we assert your right to cure your default.

Income Contingent Repayment

This type of repayment considers both your income and the balance of your loan(s).  An “ICR” can be used to pay a Direct loan, and it can be used to pay a Parent PLUS loan or Perkins loan that has been consolidated into a Direct Loan.  FFEL loans do not qualify for this program.  ICRs may last up to 25 years – which obviously means that your monthly payment will go down from what it is currently.

An ICR considers both your income and your “reasonable” expenses.   To apply, we will complete and submit an application form on the Department of Education website.

If your ICR is accepted, your balance will be forgiven after 25 years (or 20 years for loans taken after 2012).   Importantly, time spent in economic deferment counts towards the 25 years.

Income Based Repayment

This type of repayment considers your income only, and not your expenses.  You will need to submit either your most recently filed tax return or alternative documentation of income (i.e. pay stubs).  The formula used bases your payment on 15% of your disposable income.

Your balance will be forgiven after 25 years, and time spent in economic deferment will count towards your 25 year term.  To apply, we submit an electronic application.

Pay As You Earn (PAYE)

This is a newer type of income based repayment that applies only to Direct Loans incurred after October, 2011.   Payments will be lower than an IBR because the formula bases your payment on 10% of  your disposable income rather than 15%.  Further, your loan will be forgiven after 20 years (rather than 25).  In June, 2014, President Obama signed an executive order making PAYE available to all student loan borrowers, effective late 2015.

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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.