Dear Steve,
I was a student at New York University from 1996-2000, receiving my degree in film. As an irresponsible 17 year old, I decided to shoulder the debt burden to finance this endeavor.
My father was the guarantor and my family received a variety of Stafford unsubsidized loans serviced by SALLIE MAE totaling about $90K to pay for the remaining three years of schooling (an educational savings account had only accumulated enough to cover my first year). I later learned that there must have been about a $20K cap on how much could be borrowed because there were three FFELP PLUS loans in my father's name (one for each year totaling about $75K) and three (rollover?) loans in my name (totaling about $15K).
My father arranged some kind of deferment/forbearance with SALLIE MAE and it wasn't until 2002 that I realized that all of the loans weren't in my name and I realized his irresponsibility/delinquency with the loans.
So I oversaw both loans and consolidated his three loans into a single loan fixed at 5% in his name consolidated my three loans into a single loan in my name. For the last 12 years I have been speaking with Sallie Mae on both my own behalf and his (pretending to be him on the phone and having all of his correspondence sent to my home in another state).
I began paying off my loans normally and completed paying those off a year or two ago.
The current issue is the loans in his name that I feel responsibility for because it was all for my education. I am currently a freelance cinematographer based in Los Angeles making between $50K-$100K/year. As you can probably imagine, my unreliable income fluctuates wildly.
Neither of my still-married parents are not terribly financially savvy. In 2006 or 2007, at the age of 57 my father abruptly quit his job as the vice-president of a shelving manufacturing company in Kansas City. Not able to retire, and not realizing a 5 year non-compete in place, he was out of work for three years, eventually finding work doing data entry at the neurology clinic where my mother had meanwhile secured full-time work as secretary to stay afloat and maintain health insurance.
In 2009 I learned that they were losing their home to foreclosure and that two years earlier THEY HAD FILED FOR CHAPTER 7 BANKRUPTCY. I asked about the student loan debt in his name and if they had inquired about dismissal of this debt. They indicated that they hadn't even thought of it.
In my horror, I reached out to their accountant directly to inquire about adding this ex post facto. The accountant insisted that there would be no way to schedule this into their filing. I began researching the beast of how to bankrupt student loans, but three months later my wife and I welcomed our first baby, so bankrupting loans that were in my father's name took a backseat.
I continued to pay my own consolidated loan and a reduced version of his consolidated loan under an INCOME-SENSITIVE REPAYMENT PLAN based on his ~$30K annual gross earnings and a forbearance to make $100/mo interest-only payments (the loan has been capitalizing $385 of interest every month).
Fourteen months later (in 2010), my wife and I had twins unexpectedly and have been shouldering that burden which has made paying his loans impossible, and I had learned in my research that building a case of paying the loans in earnest would go a long way in an adversary proceeding. So in mid 2011 or 2012, I reasoned that my father should begin paying the loans in his own name. additionally, my wife and I are still renting an apartment for our family in Los Angeles and have been desperately trying to purchase a much-needed house with any money we can scare up, including borrowing money from her parents or even cashing out her retirement plan at great penalty.
Last year, my parents explained that they have always thought of this debt as mine and that they can't afford to pay for it anymore even at the reduced $100/mo rate. I guiltily agreed to pay for the loans in my father's name again, especially knowing that I only had six months until my own loans were paid off.
But I suggested that if we are ever to have these loans dismissed, that we should keep the payments coming from their address and if anyone is going to afford paying anything, it would have to be at the reduced-rate, using my father's meagre income. it should be noted that my mother's income (which is about $40K/yr) was never taken into account by SALLIE MAE when it came to my father's income-sensitive plan filings because the debt was in his name alone, even though they are married and file their taxes jointly. so I send them $100 every month to pay for my student loans that are in their name.
I was notified by SALLIE MAE (now NAVIENT) that 60 months of voluntary forbearance that had allowed my father to make sub-interest-only payments would be coming to an end and that the monthly amount owed would now jump from $105/mo to $895/mo. I phoned NAVIENT to understand what alternatives (my father) might have. I explained the situation and the impossibility of paying any more, but after a long negotiation, they could only offer a graduated payment of $440/mo while the interest continues to capitalize at $377/mo. unfortunately, my father makes too much to qualify for the confusingly-named INCOME-BASED REPAYMENT because his income is above the KANSAS POVERTY LINE.
So having no other options, I am looking to you. help!
1. is this debt dismissible in any way relating to my father's 2007 bankruptcy? clearly he did not represent the debt accurately as his own in his filing (though it appears on his schedule F as unsecured non-priority claims). or has a statute of limitations elapsed?
2. what else can I do to dismiss these loans? I love my father deeply and the notion of how his death will eventually alleviate the pain of this debt causes me great concern and anxiety.
3. if I can't dismiss any of this debt (or in the meantime), how can I reduce this debt to be manageable?
4. what exactly is my personal liability?
Thank you so much. sorry if this is too much detail, just want you to have the full picture.
Andrew
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Dear Andrew,
Warning: My answer takes a number of twists and turns so be sure you read it in its entirety.
Thank you for reaching out to me for help. You've done so much to try and handle this situation on your own. I applaud you for that, especially on a cinematographers income in L.A.
The first fact that jumps out to me is that while your parents want you to pay these loans and you feel an obligation to, unless you took out these loans fraudulently, there is no escaping the fact these are your father's loans. Period.
While you may feel responsible for the repayment of these loans in that they afforded you your education, the bottom line is that the loans are in your father's name. All guilt aside, they are not your loans.
You've done such an amazing thing by nearly paying off your loans. You should be applauded for that.
If there was a clock to turn back, and a way to jump back through time, I wish we could go to the day before you pretended to be your father and hid the true status of the loans from him. For no other reason than to avoid the family argument that you hid the reality of the situation from him. That being said, I understand why you did it.
I'm not 100% clear on how much of the Navient serviced remaining loans are truly private and what is government.
FFEL PLUS loans are not private loans, even though Navient may be servicing them. They are eligible for the Income Sensitive Repayment Plan (ISRP). Under this program his payment would be based on his income.
If you have FFEL Program loans owned by the U.S. Department of Education, contact your loan servicer.
If you have FFEL Program loans that are not owned by the U.S. Department of Education, contact your lender.
If you are not sure who owns your loans? Visit the National Student Loan Data System (NSLDS®) to find out.
It sounds like you've explored this option and found that the benefit of this repayment program is a maximum of ten years and each underlying lender can have their own formula to determine the monthly payment.
But you said Navient had him on a five year program and not the ten years allowed in the ISRP. I wonder if he was ever really in the ISRP?
Here is Something to Consider
The loans in your father's name might be able to be discharged in bankruptcy. It does not sound like this was addressed in his previous bankruptcy.
According to the Department of Education: "If you file Chapter 7 or Chapter 13 bankruptcy, you may have your loan discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents.
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- There is evidence that this hardship will continue for a significant portion of the loan repayment period.
- You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
Your loan will not be discharged if you are unable to satisfy any one of the three requirements. If your loan is discharged, you will not have to repay any portion of your loan, and all collection activity will stop.
This path is difficult and time consuming. It might also be very hard to find a bankruptcy attorney brave enough to take the case. But federal loans can be discharged in bankruptcy. Don't believe me? Read this.
If these are government loans, the strategy of not paying could result in his eventual Social Security payments being garnished or tax refunds intercepted. To avoid the intercept, just don't have so much deducted monthly that a refund would even happen.
But Wait
Here is what Navient says about the Income-Sensitive Repayment Plan. It sounds different than what they may have been telling you.
"For FFELP Loans Only
With this plan, your monthly payments are based on your annual income, and payments increase or decrease based on your income.
Eligibility for an income-driven repayment plan is based on a formula set by the federal government based on the current poverty level that considers household income, state of residence, household size, and either the current balance of eligible federal loans or the balance of eligible federal loans at the start of repayment.
Each customer must annually update their income information and resulting payment amount based on IRS tax data. Payments may rise with income but won't rise above a customer's standard repayment amount determined at the start of the plan.
If your loans were subsidized (that is, need-based) and your payment is lower than the interest that accrues each month, the government will pay the difference for a three-year period. If your loans are unsubsidized, you'll be expected to pay the interest.
Customers who qualify for loan forgiveness after the required number of payments -- that is, 20 to 25 years -- may need to pay taxes on the amount that is forgiven. It's a good idea to consult with a tax advisor to plan for this eventuality.
Married borrowers typically can include their spouse's eligible federal loans in the formula, depending on tax filing status." - Source
While Navient says the ISRP is for FFELP loans only, they also say income based repayment plans are generally not available for Direct PLUS and FFELP PLUS Loans for Parents.
Bottom line, it's not clear.
Finally, Some Real Help - the Income Contingent Repayment Plan
At last here is a real program that will drive your father's payment down. While FFEL Plus loans made to parents are NOT eligible for a whole bunch of programs, they are eligible for consolidation into a Direct Consolidation Loan. Once rolled into a Direct Consolidation Loan the consolidated loan would be eligible to be repaid under the income-driven plan. That is, a monthly payment based on your father's income.
There is no application fee to consolidate your federal education loans into a Direct Consolidation Loan.
Under the ICR plan, payments would only need to be made for 25 years, or until his death.
And the good news is he is eligible for this because his payments are current.
You can play with this repayment estimator to see what his new payment would be.
But in general, the ICR payment will be 20 percent of his discretionary income. For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence. The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at www.aspe.hhs.gov/poverty.
If you want to help your father apply for this consolidation loan, go here. Remember, to select the ICR as the repayment plan if you do apply for the loan.
For more information on Direct Consolidation Loans, click here.
Bonus Audio Answer
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