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Student Loan Law: 5.7 Complaint Procedures

Although it is difficult for borrowers to enforce their rights, as discussed below, there are some systems in place at the Department of Education (the Department) and at the CFPB to allow for informal relief and negotiations through certain complaint systems.

Student Loan Law: 7.3.2 Eligibility for Consolidation

Not all borrowers in default will be able to use the consolidation option to get out of default. First, while most federal student loan types are eligible for consolidation into a Direct Consolidation Loan, there are a few types of loans that cannot be consolidated. Loans that are not eligible for consolidation into a Direct Consolidation Loan include state or private loans that are not federally guaranteed; law, medical, and graduate access loans; and graduate extension loans.

Student Loan Law: 7.3.4.1 Generally

Borrowers may apply for consolidation online through the Federal Student Aid website.79 Although the Department strongly encourages borrowers to apply online, they may also download and print a paper application to submit by regular mail.80 There is no charge to obtain a Direct Consolidation Loan.81

Borrowers applying online must sign in using personal identifiers. The application consists of five parts:

Student Loan Law: 7.3.4.4 Repayment Plan Selection for Consolidation

When applying to consolidate, borrowers select the repayment plan they wish to be placed in upon consolidation. Applicants who wish to avoid the requirement to make three payments in order to complete consolidation must select an IDR plan—i.e., IBR, PAYE, REPAYE, or ICR. These borrowers must then complete the application for an IDR plan, in addition to the application for consolidation. This can be done as part of the same process when applying online.

Student Loan Law: 7.3.4.5 Completing the Consolidation Process

After the application is submitted, the consolidation servicer completes the process. Going forward, the selected servicer is the applicant’s point of contact for questions.101 The servicer is responsible for the loan verification certification process and confirming the payoff with the current loan holder. The servicer will also determine eligibility for the repayment plan selected and process any additional loans within the 180 days.102

Student Loan Law: 7.3.4.6 Potential Problems Applying for Consolidation

While consolidation is generally the most streamlined means of emerging from default (apart from the time-limited Fresh Start initiative), borrowers may encounter problems with collection agency or servicer errors or miscommunications during consolidation, particularly if they are attempting to enroll in an IDR plan. It is important for borrowers to be prepared to resubmit income documentation, if requested, and to respond to other requests for information.

Student Loan Law: 7.7.1 Introduction

The Department of Education (the Department) has broad authority under the Higher Education Act (HEA) to “compromise, waive or release any right, title, claim, lien, or demand, however acquired.”243 This provision of the HEA was part of the 1965 law creating the federally guaranteed loan program that ultimately became the Federal Family Education Loan (FFEL) Program.

Student Loan Law: 7.4.3.3 Written Rehabilitation Statement Required

The FFEL and Direct Loan regulations require that the borrower be provided with a written statement confirming the reasonable and affordable payment amount, including a prominent statement that the borrower may object to the payment amount, along with the method and timeframe for doing so, and explaining any other terms and conditions.174 The Department (or guaranty agency for FFEL Program loans) must provide this statement within fifteen business days of the determination of the loan rehabilitation payment amount.

Student Loan Law: 7.4.5 Perkins Rehabilitation

Perkins Loan borrowers may also rehabilitate defaulted loans.213 Borrowers must make on-time payments for nine consecutive months.214 The “full monthly payment” is defined as a payment that is paid within twenty days of the due date each month.215

Student Loan Law: 7.7.3 Compromises with Guaranty Agencies

The Department has approved standardized compromise and write-off procedures, described below, for use by all guaranty agencies for FFEL Program loans.263 The compromise standards relate to any negotiated agreement between the guaranty agency and the student loan borrower for the agency to accept less than full payment as full liquidation of the entire debt.

Student Loan Law: 9.3.1 Introduction

The tax refund offset program involves a blanket seizure of almost all tax refunds due to debtors who are in default on their student loans.21 Even the Earned Income Tax Credit (EITC) and Child Tax Credit—which are designed to help low-income taxpayers lift themselves out of poverty and to support families with children—are subject to seizure.22 Amounts offset may also include “special” payments such as economic stimulus refunds; however, the three Economic Income Payments (EIP) provided und

Student Loan Law: 9.3.4 Repayment Plan in Lieu of Offset

Borrowers can request written agreements to repay debts if they do so within twenty days of the date of the notice of intent to offset.53 The Secretary or guaranty agency provides a repayment schedule and, to avoid the offset, the borrower must make the first payment within the later of the seventh day after the date of decision if a review is requested, the sixty-fifth day after the date of the notice if the borrower did not request review or an opportunity to inspect and copy records, or the fifteenth day after the date on which the Depar

Student Loan Law: 9.3.6 Post-Offset Challenges

The Department has not set out a formal administrative procedure to review offsets after they have occurred but it has indicated that it will follow the pre-offset hearing procedure, even for hearings requested post-intercept. The only difference is that the offset is not stayed pending the review.

Student Loan Law: 9.3.9 Rights of Non-Obligated Spouses

When the United States intercepts a tax refund due on a joint return, the non-obligated spouse (i.e., the spouse who does not owe the student loan debt) can recover part of the seized refund by filing an “injured spouse” claim with the IRS.103 IRS regulations require that the United States notify any person who has filed a joint return with the obligated borrower of the steps that a non-obligated person can take to secure a proper partial refund.104 States may have similar protections for no

Student Loan Law: 9.5.2 Amount of Offset

The regulations restrict the amount that can be offset from a “monthly covered payment,” defined as “a covered benefit payment payable to a payee on a recurring basis at monthly intervals that is not expressly limited in duration, at the time the first payment is made, to a period of less than 12 months.”335 The amount of the federal offset is the lesser of:

Student Loan Law: 9.4.2.4.2 Recent Unemployment

The regulations provide that the Department will not garnish a debtor’s wages if the borrower has been involuntarily separated from employment and has not yet been reemployed continuously for at least twelve months.153 Borrowers must inform loan holders that they qualify for this exception either by checking the appropriate box on the hearing form or by providing other written notice.

Student Loan Law: 9.4.2.4.4 Financial hardship

The regulations provide that a debtor may object to a proposed garnishment on the basis that it would cause financial hardship to the debtor or the debtor’s dependents.169 According to the Department, the overwhelming majority of objections to proposed garnishment are based on financial hardship.170