President Trump signed an executive order that temporarily suspends federal student loan payments and interest under the CARES Act. The temporary suspension of student loan repayment has been extended to December 31, 2020.
There are three types of student loans: federally guaranteed loans backed by the Federal Family Education Loan Program (FFELP), including Stafford and PLUS loans, administered by private lenders like Sallie Mae; federally guaranteed loans by the Department of Education issued directly to students; and private education loans (PELs) that are not federally guaranteed, often those issued by for-profit schools, such as trade and technical schools.
Student loans are rarely discharged in bankruptcy. The only way they may be discharged is if the failure to discharge the loan(s) would cause an “undue hardship” to the debtor and his/her dependents. As such, student loans enjoy a unique legal status unlike most other consumer loans. Because student loans are exempt from many rules governing consumer loans, the potential for abuse is high.
When a borrower finds it impossible to meet monthly payments, forbearance halts the collection process. But during forbearance, interest and penalties continue to accumulate, resulting in loan amounts that can double or triple once the borrower begins paying again.
“In 2007, a nationwide investigation headed by New York Attorney General Andrew Cuomo found that three major student lenders–SLM Corp., better known as Sallie Mae; Citibank; and Education Finance Partners–had given universities kickbacks in exchange for being designated their “preferred lenders.”
Hopefully, the laws / regulations concerning student loans change for the better.
