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Student loans have grown to the largest type of unsecured debt in America with over 1.5 trillion owed.

To ensure debtors receive a “fresh start” and not a “false start,” the Bankruptcy Court for the Middle District of Florida (MDFL) has implemented a Student Loan Management Program (SLMP), which utilizes transparent tools to obtain relief from federal and private student loans. The SLMP attempts to tackle the $1.5 trillion student loan debt currently owed by forty-four million Americans.

The goals of SLMP are threefold:

1) increase communication presently lacking between both federal and private student loan borrowers and their servicers;

2) raise awareness among borrowers available options; and

3) end unnecessary and costly forbearance.

Rather than simply leaving these loans on hold to accrue capitalizing interes, the SLMP enhances communication and availability of available options and end needless forbearance that causes larger loan balances. For instance, a student loan borrower who owes $100,000 in student loans with an interest rate of 8 percent owes over $148,000 after a five-year period if the loan is simply put on hold. The program is also designed to accommodate settlements of private student loans via mediation. The automatic stay will be lifted on matters addressed.

In a similar vein, in 2010, the MDFL implemented a Mortgage Modification Mediation (MMM) Program to assist debtors in seeking mortgage modification. The MMM program uses a portal to exchange documentation and communicate with mortgage servicers. The secure portal provided by DMMPortal at https://www.dclmwp.com has added a dropdown menu for student loan options now available in the Middle District of Florida. It has been a great success, has reduced litigation, and is recommended by mortgage creditors as a “model” for bankruptcy loss mitigation programs. It has been duplicated in many bankruptcy courts across the country and has saved thousands of borrowers from homelessness.

Without an advocate on their side, loan balances continue to rise, as debtors fail to take advantage of various forgiveness programs or inadvertently default, which adds an additional 25 percent in collection costs to the often already high balance.

Why is there a need for such a program?

In 2017, the Consumer Financial Protection Bureau (CFPB) and five State Attorneys General sued the largest of the Department of Education’s (ED) servicers, Navient, in which they alleged that Navient misallocated payments, steered borrowers away from Income Driven Repayment Program Plans (IDR), and failed to provide clear information on how to re-enroll in IDR plans.

According to an Inspector General’s Audit of Federal Student Loan Servicers, it was found that 61 percent of the time, student loan servicers are non-compliant with Federal Loan Servicing Requirements regarding forbearances, deferments, income driven repayment plans, etc. (February 12, 2019 ED-OIG/A05Q0008). We believe it would be beneficial for the debtors to have their own advocate to review their options with them and then apply for the appropriate programs.

The report states that one of Federal Student Aid’s (FSA) objectives is to include the implementation of processes, tools, and methods that protect the interests of students, and to support FSA in making service providers accountable. The objective further states that FSA would ensure that its processes for resolving student issues are simple for customers to use and sophisticated enough to capture insights that can be used to refine student aid operations. SLMP has all of these ideas wrapped into one program.

To us, this is a replay of the mortgage crisis: there are affordable student loan repayment plans available from the government, but student loan servicers have not been able to properly assist borrowers, just as the mortgage servicers could not do so. And there are multiple student loan repayment plans that often are confusing to borrowers. This led to the idea that we could use the same MMM process when debtors have student loan debt.

This is largely needed as Congress’ intent is for debtors in bankruptcy to receive a “fresh start.” Since most student loans are non-dischargeable, this is not the result when debtors have student loan debt. We believe a process is needed that works for all parties to assist debtors to enroll in an available IDR.

We all agree there are significant problems that debtors face when they have federally guaranteed student loans. Leaving this to the debtors to figure it out on their own, the government’s website is not working. Leaving it to the servicers, who do not represent the borrowers, is not working.

The government and the student loan borrower often cannot resolve these issues by themselves; within the confines of the bankruptcy process true resolution can be found. SLMP is the best way to achieve this goal.The new Student Loan Management Program in the United States Bankruptcy Court for the Middle District of Florida may benefit you!

The program began on October 1, 2019 and has great success so far! Most all of the major student loan servicers are participating in the program such as FedLoan Servicing, Navient, Nelnet, and Wells Fargo. Many income driven repayment plans for student loan borrowers will result in forgiveness. Public Loan Service Forgiveness is over a ten year period and several other programs are over twenty to twenty five years. Contact us to learn more!