The examples below can help you understand what to do about your student loan problems. You should use these examples to get ideas for your own case that you can pursue on your own or by checking out these resources.
Borrowers with Disabilities
1. Medical Review Failures
Example: Joe’s application for disability discharge has been denied due to “medical review failure.”
Joe’s situation is very common. Loan holders and the Department routinely deny applications on this basis. The problem is that “medical review failure” could mean a lot of different things. It might mean that the agency has reviewed Joe’s medical information and decided that it was insufficient to prove a total and permanent disability. But it could also be a more technical problem such as the doctor’s failure to provide a license number or Joe’s failure to sign the form. The problem is that the agency doesn’t explain the basis for the denial, just that it is a “medical review failure.”
The case is not over at this point. Joe should call the Department’s Disability Discharge Unit and ask them what the reason was for the denial. As of October 1, 2010, this Unit is set up at Nelnet. If it is a problem that can be addressed, Joe should tell them that he will fix it, such as by signing the form or providing the doctor’s license number. He should also request that they accept the new information and continue the review process. If Joe can’t get anywhere with the Disability Discharge Unit, he should consider contacting the Department of Education ombudsman or a guaranty agency ombudsman if he is working with a guaranty agency. He might also try to find legal assistance.
If the denial is based on a full medical review, Joe should ask whether his doctor complied with any requests for additional information. If not, he could follow up with his doctor and see if the doctor will provide the necessary information. He should also ask whether there is any other information that the agency would find helpful. If so, he can submit this information and ask the agency to review his application again. If none of these strategies work, he can appeal a final denial in federal court.
2. Conditions That Are Not Permanent Disabilities
Example: Maria has a back condition, but is not totally disabled.
Maria is only eligible for a disability discharge if she is totally and permanently disabled. If she is not eligible for another type of cancellation and she is not yet in default, she should see if she qualifies for a deferment. The most likely would be an unemployment deferment or economic hardship deferment. Each of these is only available for up to three years, so this is not a long-term solution. They will be very helpful if Maria is likely to recover and get back to work. She could even work and still get the economic hardship deferment if she qualifies based on her income level for her family size.
A longer term solution, assuming that Maria’s condition does not worsen and she is still not permanently disabled, is to consider an income-based repayment plan. If she is already in default, she can try to consolidate or rehabilitate to get out of default and then select an income-based repayment plan. This will allow her to pay manageable amounts while she is not working or while she has low earnings. She can always change plans if she recovers and starts making more money. At some point, if she does better financially, she may no longer qualify for the income-based repayment plan.
Private loans
1. Problems Repaying Private Loans
Example: Frank is having trouble paying his private loans, but is not yet in default.
Frank should consider calling the loan holder and see if he can work out a loan modification or modified repayment arrangement. For example, he could ask for a restructuring of the terms of the loan, interest rate reduction, or principal reduction. He could also request a lower monthly repayment plan. He should first see if he has a copy of the original loan agreement and promissory note. These documents explain the programs that the creditor agreed to offer when Frank first took out the loan. This is important for private loans because private lenders are not required to offer flexible repayment, cancellation or deferment options. Even though the programs are not required, some lenders will offer them. Others will consider assistance on a case-by-case basis.
Rehabilitation
1. Getting a Reasonable and Affordable Payment
Example: Carla was in default on a FFEL Stafford loan. She decided that she wanted to get out of default through rehabilitation. The collection agency that worked for her guaranty agency however, insisted that she had to make minimum rehabilitation payments that were more than she could afford.
Unfortunately, this is a very common problem. Collection agencies often claim (wrongly) that borrowers must make payments that equal a certain percentages of their loan balances. They do this, among other reasons, because they get paid more if they can get borrowers to make these minimum payments. The Higher Education Act, however, provides that loan holders cannot require borrowers to make minimum payments in order to rehabilitate their loans. Borrowers are entitled to pay only what is reasonable and affordable for them.
The loan holder or collector has the right to request documentation from Carla to show her income and expenses. Most loan holders also request that borrowers fill out financial statement forms and provide proof of income and expenses.
In this case, if the collector continues to insist that Carla pay more than she could afford, Carla has a number of options, including:
- She should review the pros and cons of rehabilitation and consolidation and make sure that rehabilitation is the option she wants to use to get out of default.
- She should ask to speak to the colletion agency supervisor.
- If she cannot get anywhere with the collection agency, she should contact the guaranty agency and ask to speak to the agency’s ombudsman if they have one.
- Carla should also consider filing a complaint with the guaranty agency, the Department of Education and with the Federal Trade Commission about the debt collection agency’s behavior. This section of the web site has more information about filing complaints against collection agencies. Carla might also want to consider contacting her state or local consumer affairs agencies.
- Carla should consider seeking legal assistance to help her enforce her right to a reasonable and affordable payment plan.
- She might also have legal claims against the collection agency for violations of the fair debt laws.
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