Guidance for Providers working with Student Loan Borrowers

What to do in Common Student Loan Scenarios?

Below are common situations in which student loan borrowers may find themselves. For each, you will find general information and some resources that could be helpful. The information is for general use only and does not constitute specific legal advice for any individual’s situation. If you have any questions or are working with a borrower who needs specific legal analysis, please contact Legal Aid.

Borrowers

Borrowers are invited to call Legal Aid’s Economic Justice Information Line with questions about their student loans. They can call 216-861-5899 anytime, leave their question and contact info, and someone will call back within 2 business days.

Service providers and the borrower will need to understand some basic information about the student loans in order to decide what options are available for the borrower. Most importantly: Does the borrower have any federal student loans? A person might have only federal student loans, both federal and private student loans, or just private student loans. Almost all of the relief available applies to borrowers with federal student loans.

Student Loans - Federal or Private?

Federal or private loan determination:

The first step in helping any student loan borrower is determining whether they have federal or private student loans. Federal student loans are those issued by the federal government (Direct federal loans) or guaranteed by the federal government (FFEL federal loans). There are other types of federal loans, such as Parent PLUS loans (for parents or grandparents financing education for a student). In contrast, private student loans are those issued directly by a private entity, like a bank or a school. If the borrower has their “Master Promissory Note” – that is, the contract that governs the term of their student loan – they can look at that document to determine if it is a federal or private loan. If not, the borrower has two options.

First, the borrower can log on to studentaid.gov to see if they have federal student loans. On the website, they can log in with their FSA ID (this is the same login information that they would have used to file their FAFSA application). Once logged in, the borrower will see a dashboard with information on any federal student loans that they have. This website will only have information related to federal loans.

Note that borrowers can obtain more granular data on their federal student loans by obtaining their “National Student Loan Data System” (NSLDS) Report. If a borrower eventually seeks assistance from an attorney or other advisor, they will likely need to obtain this report. To do so, they can follow the steps here.

Second, the borrower can obtain a free credit report from freecreditreport.com. Generally, the report will list all of the borrower’s student loans, including both private and federal. However, if a borrower has federal loans, it is still necessary for them to log into their FSA account so that they know what type of federal loans they have.

The borrower has private student loans but cannot afford repayment:

Unlike federal loans, there are no standardized repayment plans that exist for all private student loan borrowers. Instead, the terms of a private student loan are governed by the contract between the lender and the borrower. Some private lenders will provide various repayment plans and/or will work with a borrower if they need assistance. For more information on private student loans visit National Consumer Law Center’s Student Loan Borrower Assistance website.

For Borrowers who have federal student loans and need help with payment options:

The borrower has federal student loans and is unclear when payments will resume:

Since March 2020, the federal government has paused payments for most federal student loans. This means that such borrowers have not had to make any payments since that time. Notably, the prior months of the forbearance count as “payments” for purposes of certain loan forgiveness programs (such as Public Service Loan Forgiveness and Income-Driven Repayment plans, both discussed in scenarios below).

Federal student loan borrowers will again need to make payments starting in October 2023 (loan interest accrual resumed on September 1, 2023 and payments will be due beginning in October 2023). Borrowers should therefore be thinking about their repayment options right now. They can learn more about possible repayment options in this article.

The borrower has federal student loans but cannot afford the monthly repayment on a standard repayment plan:

Most borrowers with federal student loans are eligible for an income-driven repayment plan that ties their monthly payments to their income. In fact, many borrowers are eligible for a repayment plan with a $0 monthly payment. Borrowers must affirmatively select such a plan and then re-certify their eligibility on a yearly basis. After 20-25 years in such a repayment plan, the federal government will forgive the borrowers’ remaining debt. With repayment on federal student loans resuming in Summer 2023, borrowers should consider enrolling in an IDR plan as soon as possible. Legal Aid’s website has more information on income-driven repayment plans, and a guide on how to help a borrower enroll in such a plan:

The borrower has federal student loans and was in default before the COVID-19 payment pause started in March 2020:

This borrower is likely eligible to benefit from the Department of Education’s “Fresh Start” initiative. Under this program, borrowers’ loans will be moved into good standing, they will be eligible for an income-driven repayment plan, and there will be no involuntary collections on the loan. In other words, they will get a “fresh start.”

To access the program, borrowers should call the Default Resolution Group at the Department of Education (800-621-3115) or their Guarantee Agency. For more information on Fresh Start, see this Fresh Start Fact Sheet, or see this resource from the National Consumer Law Center.

The borrower has federal student loans and went into default during the COVID-19 payment pause:

If the borrower’s loan is still showing up as being in “default,” the borrower likely has a federal loan held by a commercial entity, called a “commercial-held FFEL loan.” The Department of Education has directed the holders of these loans to move the borrowers into good standing by transferring the loan to the Department of Education. Unfortunately, we have heard about many delays in this process, and it is not yet clear when the commercial entities will transfer the loans to the Department of Education.

If you encounter a borrower in this situation, you can reach out to Legal Aid or you can help the borrower file a report with the Department of Education’s Ombudsman’s office.

For Borrowers with federal student loans facing special circumstances (such as fraud) that may require legal assistance:

The borrower has federal student loans but is disabled and unable to work:

This borrower might be eligible for a discharge of their federal student loans. Federal law provides borrowers who are “totally and permanently disabled” a discharge in various circumstances, including if they have been on social security disability insurance for at least five years, or if they will remain on social security disability insurance for at least five years in the future. The Department of Education is working with other agencies in the federal government to try to find these borrowers and to automatically discharge their loans. Other borrowers can apply with a medical certification attesting to their disability.

If you are working with a borrower eligible for our services, please refer the borrower to Legal Aid for additional assistance. You can also learn more here: Total and Permanent Disability (TPD) Discharge (disabilitydischarge.com).

The borrower has federal student loans but the school they were attending closed:

This borrower might be eligible for a discharge of their federal student loans. In most circumstances, federal law provides borrowers who were attending a school when it closed, or who withdrew from the program within 180 days before the closure, a “Closed School Discharge.” While the Department of Education is trying to automate the process for providing this relief, some borrowers will still need to apply.

If you are working with a borrower eligible for our services, please refer the borrower to our intake for additional assistance. For more information on Closed School Discharges, please visit: Student Loan Cancellation: Closed School (studentloanborrowerassistance.org).

The borrower has federal student loans but the school they were attending defrauded them:

This borrower might be eligible for a discharge of their federal student loans. Federal law provides borrowers with a “Borrower Defense to Repayment” if their school engaged in certain misconduct (such as falsifying data about job placement rates, falsely guaranteeing employment, and misrepresenting the transferability of credits).

The Department of Education has announced discharges for borrowers who attended the following schools and programs:

Students of Westwood College, any location, between 1/1/2002-11/17/2015
Students of ITT Technical Institute at any location and at any time.
Students of Corinthian Colleges at any location and at any time.
Students enrolled in the Medical Assistant or Medical Billing & Coding Program at the Kenmore Square campus between 7/1/2011-2/16/2012.
Students who attended Marinello Schools of Beauty between January 2009 and February 2016.

Borrowers eligible for these discharges should routinely check their FSA account to see if the discharge has occurred. If they do not see any changes by end of Summer 2023, they should contact Legal Aid or file a report with the Department of Education’s Ombudsman’s office.

In addition to these schools, borrowers can apply to the Department to have their loans discharged under the Borrower Defense to Repayment regime. The applications are technical, and borrowers are encouraged to speak with a lawyer before doing so.

If you are working with a borrower eligible for our services, please refer the borrower to our intake for additional assistance. For more information on borrower defense to repayment, please see Borrower Defense FAQs — Project on Predatory Student Lending (ppsl.org).

The borrower has federal student loans that they did not sign for:

This borrower might be eligible for a discharge of their federal student loans. Federal law provides borrowers with a “False Certification” discharge in various situations, including when they are the victim of identity theft or forgery. The requirements for such a discharge can be tricky and such a borrower is encouraged to speak with an attorney.

If you are working with a borrower eligible for our services, please refer the borrower to our intake for additional assistance. For more information on false certification discharges, please visit False Certification – Student Loan Borrowers Assistance (studentloanborrowerassistance.org).

For Borrowers with federal student loans who are eligible for specific programs, concerned about taxes, or who owe other debt:

The borrower has FFEL federal loans and has been in repayment for many years:

This borrower might benefit from the Department of Education’s recently-announced Income Driven Repayment (IDR) Account Adjustment. Under income-driven repayment plans, borrowers are eligible to have their loans discharged after being in repayment for 20-25 years. The Department has recognized that many borrowers have been in repayment for a significant period of time, and many should be eligible (or close to eligible) to a loan discharge. However, problems with the student loan system have curtailed the Department’s ability to provide such discharges.

So, in 2024, the Department will be going back and providing borrowers with credit towards their IDR for any period of repayment and certain periods of deferments and forbearances. Borrowers with Direct Federal loans do not need to take any steps to benefit from the adjustment. However, if the borrower has a FFEL – rather than Direct – federal loan, the borrower will need to “consolidate” their loans into a direct one before the end of 2023 (consolidation is the process of combining multiple existing loans into a new “consolidated” loan).

For more information on loan consolidation: Consolidation to get out of default (studentloanborrowerassistance.org).

For more information on the IDR account adjustment: Payment Count Adjustments Toward Income-Driven Repayment and Public Service Loan Forgiveness Programs | Federal Student Aid.

The borrower applied for the one-time COVID-related cancellation program and is confused about what is happening:

On June 30, 2023, the U.S. Supreme Court struck down the proposed cancellation program. As a result, borrowers will not see cancellation under the program. If a borrower was “approved” for the relief and took steps based on that representation, please reach out to Legal Aid for further discussion.

Because the Supreme Court decision was narrow and focused on the President’s authority to cancel debt in response to a national emergency, President Biden announced that he was going to try to pursue other ways to create a different cancellation program. We do not have any details on what a new cancellation plan will look like or when it will be available. We will provide updates as they are available.

For more information, visit our Federal Student Loan Cancellation Update, September 2023.

The borrower has already received a discharge of their federal student loans and is concerned about their federal tax liability:

Under federal law, borrowers who receive a cancellation or discharge of their loans through 2025 will not have that amount considered taxable income for purposes of federal taxes. However, some states or local governments may treat the cancellation or discharge differently. If a borrower is in that situation, they should consult with a tax expert in their area.

The borrower has various outstanding delinquent, defaulted, or unaffordable debts, including student loans:

Depending on the specifics of the individual’s situation, bankruptcy may be an option for this borrower. Although bankruptcy has long been a difficult path for student loan borrowers, the Department of Justice and Department of Education recently announced some changes that could facilitate the discharge of these loans through the bankruptcy process. We anticipate that many borrowers who are eligible for legal aid’s services will also be eligible for a discharge under this new procedure.

For additional information on the new guidance: New Process to Discharge Student Loans in Bankruptcy | NCLC Digital Library. Given the complexity of the issue, we encourage you to refer any borrower who might benefit from bankruptcy to Legal Aid for further assistance.

Updated September 12, 2023

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