Chase Minimum Payment Lawsuit

A federal judge is allowing JPMorgan Chase & Company to settle a recent class action dispute. A settlement of $100 million dollars is about to be approved.

Some JPMorgan Chase customers were invited to transfer their balance from another credit card company and, as an incentive, the loan was supposed to have a fixed rate of interest that did not go up right away.

However, JPMorgan Chase may have raised your minimum payment and these higher minimum payments may have caused you to make late payments and then be charged late payment fees and penalty interest rates.

Other consumers may have felt like they were forced to accept a higher rate of interest on their JPMorgan Chase credit card in order to keep their original monthly payment amount.

If you had your minimum payments on a credit card raised by JPMorgan Chase in late 2008 and 2009 (by up to three percentage points) you could be part of the class-action lawsuit and receive a settlement.

The settlement is based on the up-front fees that were initially paid by consumers who bought into a fixed interest-rate credit card with JPMorgan Chase and Company.

Final approval by U.S. District Judge Chesney in San Francisco was set for November 16th 2012.

Additional information may be found at chaseminpaymentlawsuit.com/info

Free Application For Federal Student Aid

By filling out the Free Application For Federal Student Aid (FAFSA), you can become eligible for grants and loans in order to go to college.

The FAFSA is used to identify individuals with and without financial need, and allocates resources to them.

To do this online, you will need a personal identification number (PIN).  Once you have a PIN, you can apply online at www.fafsa.ed.gov

Loans are typically repaid to a federal loan servicer who forwards the payment to the federal government (Department of Education).

If you are going to college (or returning to college), after you fill out the FAFSA you will receive a student aid report (SAR).

Your future share of the costs of going to college is known as your “expected family contribution” (EFC).

The financial aid administrator at your college can make adjustments to your eligibility data based on their experience and your personal situation.  These are known as case-by-case adjustments.

Case-by-case adjustments are also made for students who are independent from their parents, or are in the military or National Guard and in “active duty”.

Even if you are claimed by your parents on their tax return as a dependent, you may still be treated as independent.  When you are “independent” for student loan purposes, your EFC may be lower which could give you more access to grants or loans at college.

Debt Relief Services

Debt relief companies change the terms of a person’s unsecured debt, usually through renegotiation or settlement.

When these debt relief services are provided by a company over the phone, the Telemarketing Sales Rule applies to all calls made to customers (and all calls made from customers who saw advertising).

The Federal Trade Commission (FTC) set-up the Telemarketing Sales Rule to protect customers from individuals who give sale pitches over-the-phone and may lack qualification. These individuals charge high fees and claim to meet state legal requirements but may not actually provide any real service or result.

The Telemarketing Sales Rule broadly describes telemarketing as a “plan, program, or campaign conducted to induce the purchase of goods or services by phone”.

A ‘debt negotiation company’ is one that claims to reduce your monthly payments by making changes to the amount that you owe and/or the terms of your agreement.

Therefore, student loan consolidation companies are subject to the Telemarketing Sales Rule because they provide debt negotiation and debt relief services over the phone.

A CPA or an attorney can help you and will not be subject to the Telemarketing Sales Rule. When there is a face-to-face meeting, the door-to-door sales rule may require a three-day cooling off (cancellation) period.

When you are contacted by a telemarketer for debt relief services, they must disclose certain things to you and they cannot take any money up front.  In fact, a provider of debt relief services must:

  1. Must create an agreement between the debtor and the creditor
  2. Must succeed in accomplishing the agreed-upon plan, and
  3. The debtor must make at least one payment to the creditor before the telemarketer (or their company) can collect any fees.

The provider of the debt relief service must also disclose how long it will take to achieve the desired result.

If the plan requires you to stop paying creditors, telemarketers or their company must disclose that such action:

  1. Can have a negative effect on your credit
  2. Can create increased collection efforts or legal actions against you, and/or
  3. Can increase your total debt load amount over time.

If you are in the process of obtaining a consolidation, you should be sure that you can continue making the payments under the new plan.  If you do not provide alternative documentation of income information each year (under certain plans), you may be forced out of the special repayment plan and you may no longer be eligible for loan forgiveness after making all of the required payments.

A provider of debt relief services can ask you to put your fees into a special bank account so that those funds are available to them as soon as they do what they promised.  In this case, the debt relief provider is not collecting your fees up front, but there are certain rules they must follow:

  • The customer will continue to own the funds;
  • The customer may withdraw from the service at any time without penalty; and
  • If the customer withdraws the funds, he or she is entitled to a full refund of any money minus any partial amount of fees which may be due for services provided, if any (as outlined and limited by the FTC Regulations).

Companies which provide debt settlement or debt management services are subject to state laws which limit their activities.  A ‘student loan counselor’ or ‘consultant’ may have just invented their own business title after reading a few handouts on the subject.

Obama Repayment

The Income-Based Repayment Program was approved by Congress on July 1, 2009. The plan is available to both FFEL (the older program) and Direct Loan borrowers (the newer program).

Starting in 1993, Senator Kennedy promoted an Income-Contingent Repayment Plan (ICR) for Direct Loan borrowers in order to help career-minded individuals who were seeking public service jobs which happened to be lower-paying. The Direct Loan program actually started that very same year.

So, for a while there were FFEL (Federal Family Educational Loan) and Direct Loans. FFELs were managed by banks while Direct Loans were handled by the government.

But the financial crisis of 2008 brought havoc to the student lending industry and college graduates alike; The lack of profitability and availability of funds for student loans forced the U.S. Government to phase out the older FFEL program beginning in 2010. Banks would no longer make federally guaranteed student loans. The government would continue to make Direct Loans to borrowers but private companies would “service” the loans (collect the payments and their share of the profits) and be known as student loan servicers. FFEL borrowers would still make payments to the bank who lent them the money, but Direct Loan borrowers would now make payments to a servicer (who would then forward the money to the Department of the Treasury).

Because of high unemployment and high default rates (about one in five borrowers hasn’t made a payment in more than nine months), programs that previously aided career-minded individuals) now actually serve default-minded individuals.

The Income-Based Repayment Plan (IBR) is available for either FFEL Loans or Direct Loans, but is not available for Parent PLUS Loans (or Direct Loan Consolidations which have somehow included a Parent PLUS Loan).  Parent PLUS Loans have been made under both the FFEL program and Direct Loan Program, so be careful when evaluating your eligibility.

You have to demonstrate that you have a partial financial hardship in order to participate in IBR. If you have any amount remaining on your loans after 25 years, your loans will be forgiven. If you leave the program (or fail to make on-time payments), any balance will not be forgiven. The payments that you make can also be put towards Public Service Loan Forgiveness (120 on-time payments while working “full-time” as a public service employee) if you qualify.

Income-Based Repayment is currently the third option available to federal student loan borrowers, with the fourth being Income-Sensitive Repayment (for participants in the older FFEL federal student loan program).  Income-Contingent Repayment and Pay As You Earn make up the other more popular programs for repayment.

Many borrowers will seek assistance from an attorney for the first time in their lives as the result of borrowing money for college directly from the government.  By getting legal assistance, borrowers can avoid inadvertently being over-charged or paying too much over time as a result of enrolling in a special repayment plan. An attorney will look at cancellation, discharge or Public Service Loan Forgiveness first, not to mention settlement for less than the full balance (if applicable). If you have other unpaid debt (such as credit cards), an attorney who can litigate is invaluable.

One problem with Income-Based Repayment is that it can create negative amortization on your loans.  Negative amortization means that the amount of interest is actually more than the monthly payment amount and your loan balance actually increases. However, for borrowers who are desperate to stay out of default (and who know that their income will be limited for the foreseeable future), IBR makes sense because default can bring wage garnishment and tax refund interception, among other problems. For this reason, the Income-Based Repayment Plan would have been better known as Obama’s Default Prevention Repayment Plan, even if no one seems to be participating.

Direct Loan Consolidation

If you want to make only one student loan payment per month, loan consolidation is available for both federal and private loans.

When you apply for consolidation, you are applying for a brand new loan which pays off all other loans. Direct Loan consolidations can be completed on-line or over the phone.

An application for Direct Loan Consolidation requires that you put down two references in the event that the lender or the Department of Education cannot find you. These references do not act as cosigners.

If you are in default on your federal loan(s), you can consolidate out of default. If you want private loan consolidation, you will probably need good credit.

For federal student loans, if you are in your first year of repayment, the Alternative Documentation of Income form is also required. If you are in your second year of repayment or the IRS is unable to provide information on your income to your loan servicer or the Department of Education, the Alternative Documentation of Income form will also be required.

If you are a Direct Loan borrower, you may choose to file the Alternative Documentation of Income form if your tax return doesn’t reflect your current income.

If you are on Public Assistance, you may want to file the Alternative Documentation of Income form along with copies of the food stamps or other assistance received.

If you are on the older FFEL Program, you may choose to file the Alternative Documentation of Income form if your tax return doesn’t reflect your current income or your ability to repay.

By consolidating and reducing your monthly payment amount, the number of payments including interest can increase. Direct Loan Consolidations have repayment periods of up to 30 years, depending on the amount of the loan.

After you submit your loan consolidation paperwork, the Department of Education will send you a summary sheet about your new consolidation loan and then pay off your loans within 10 days, typically.

The Department of Eduction’s summary sheet will also inform you of your repayment plan, if you selected income-based or income-contingent repayment (or another repayment plan) on your Direct Consolidation Loan application.

The new interest rate is the average among the loans which were combined, not more than 8.5%.  The following loans can be consolidated:

  • Federal loans
  • Stafford Loans
  • Perkins Loans
  • Direct PLUS Loans
  • Supplemental Loans
  • Other Federal Loans

You will have 180 days to add (fold in) any new Direct Loan to a consolidated loan.

If you want to apply for the Income-Based Repayment (IBR) plan, do not include any Parent PLUS loans in a Direct Consolidation Loan.

If you are confused when you receive your first Direct Consolidation Loan billing statement, it could be because the Department of Education may not have correctly calculated and updated your Income-Based or Income-Contingent Repayment amount.

One option is to apply for a deferment or forbearance right away.  Once the Department of Education has provided you with the proper repayment amount, you should be able to begin making payments again, depending on your situation. Be sure that the deferment or forbearance is approved prior to your first consolidation loan payment date, otherwise you will be late on your very first payment!

This deferment/forbearance strategy (which buys time for the Department of Education to update the correct reduced repayment/monthly billing amount under an approved Income-Based or Income-Contingent repayment plan) keeps you from paying more than the required amount so that you can get the maximum amount of loan forgiveness (after 10, 20 or 25 years of regular, reduced payments).

For borrowers who are consolidating (but not participating in an Income-Based or Income-Contingent repayment plan), deferment of forbearance forces the Department of Education to get you the correct billing amount before you make any payments at all on your new consolidated loan.  Contact the admin at myedaccount.org if you need assistance with special repayment plans or consolidation.

Student Loan Legal Assistance

When your finances are out of control, bankruptcy becomes a viable option.  Chapter 7 bankruptcy represents a total discharge of your debt, while Chapter 13 provides relief through a court-approved repayment plan.

An attorney can help you evaluate pre- and post-bankruptcy options as well as determine if there has been fraud on the part of the lender or if there was no educational or economic benefit conveyed by attending college and accumulating large amounts of debt.

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act bankruptcy requires that you attend an approved credit counseling course up to six months before you file for bankruptcy known as ‘pre-bankruptcy’ counseling.

There is also a second counseling requirement: After most of your paperwork has been completed (but before your final discharge), you are required to attend a ‘personal financial management course’ which has also been approved by the Executive Office of the U.S. Trustee.

Approved agencies under the National Foundation for Credit Counseling have provided free credit counseling (the first requirement) to households with income that is less than 150% of the poverty line.

Student loan bankruptcy generally requires adherence to the Brunner Test, which is made up of three ‘prongs’:

First, the debtor’s current income and expenses are evaluated in terms of maintaining a minimal standard of living.

Second, additional circumstances are evaluated in terms of whether or not the situation has been (and will remain) hopeless.

Third, the debtor must have made a good faith effort to find and keep the best job possible as well as to minimize personal living expenses.  A willful effort to cause the default does not meet this standard.  Debtors should have attempted to qualify for income-based and income-contingent repayment plans and facts would generally have to be presented in your case to show your rationale for not enrolling in such programs, such as the accrual of large amounts of interest or that participation would force a drop in your standard of living or that you did not qualify at all.

Bankruptcy on HEAL Loans cannot be declared during the first seven years of repayment and, afterwards, a court would have to feel that it was otherwise unconscionable not to allow it.

Contact the admin[@]myedaccount.org for a referral to an attorney.

Refund Interception and Student Loan Repayment

If you are in default, the Department of Education (DOE) must send you a written notice of their plan to take your tax refund; A tax offset occurs when your tax refund is intercepted in order to collect your federally guaranteed student loan debt.

The DOE notice gives you a chance to photocopy their records and obtain a review of the account’s validity. A tax refund offset occurs only with the permission of the Secretary of the Treasury of the United States.

As long as reasonable efforts were made to give you notice, an actual notice may not be required. If you receive this type of notice, you may only have a limited period of time to respond and make a new, written agreement to repay your debt(s).

Under a new repayment schedule, the first payment will be required to be submitted within a limited period of time. In addition to tax refund interception, the Department of Education could also seek to garnish your wages in order to collect your student loan debt (or obtain an administrative offset.)

If you are in this situation, keep in mind that you could be given incorrect information from a collection agency; Once the tax offset goes through as “certified”, default cannot be avoided just by making payments. You may want to obtain professional assistance to stop a tax refund offset (or wage garnishment) because large collection fees could be added to the balance of your loans, you will not be eligible for special reduced loan repayment plans, and your employer could begin withholding amounts from your check.

Each year, any refund that you are owed could be taken (intercepted) to repay your student loan debt. Contact the admin at myedaccount.org right away for more information. Borrowers typically seek rehabilitation or default consolidation out of default, but other legal options could be considered as well.

Fair Debt Collection Practices Act

When a debt is collected by the United States, the Fair Debt Collection Practices Act (FDCPA) has been specifically excluded by Congress. That means that, for purposes of student loan collection, the government may not have to comply with the FDCPA.

And, when it comes to collecting student loans, the government has massive powers. These powers have recently been increased, with or without your knowledge.

For example, the government’s right to intercept a tax refund to pay off a student loan from no more than ten years ago was ended by Congress in 2009. Now, any tax refund can be intercepted to pay any federally guaranteed student loan.

Even the right to declare bankruptcy on federal student loans (except for unusual circumstances, depending) was largely removed from by Congress in 1998.

The amount of student loans outstanding in the United States has surpassed 1 trillion (with total consumer debt reaching $2.5 trillion). While more and more graduates have larger amounts debt, fewer of their rights have been protected.

By having large amounts of debt it can, of course, become harder and harder to make payments and it is usually a specific event (such as illness or unemployment) that can ultimately push a borrower into default.

For most student loans, default begins on the 271st day after missing a payment and penalties will begin shortly after delinquency (or after having missed just the first payment). Interest will be charged, but not on the penalties, however.

Student loan collection is mostly performed through an administrative offset, wage garnishment or tax refund interception.

One loophole regarding student loan debt bears mention: If your debt is being collected by a private collection agency or attorney, the FDCPA will actually apply as the law was originally intended.

College Savings Plans

A 520 plan is a college planning tool. The number 529 is the Internal Revenue Code Section for which it is named.

There are two types of 529 plans:

  • Prepaid Tuition Plans
  • College Savings Plans

Basically, a parent (or grandparent) puts money into an account. The money can later be withdrawn to pay for the college expenses of a child (or grandchild).

If the investment account grows over time, the withdrawals should be tax-free as long as the funds are used to pay for tuition and/or room and board at a college (a.k.a. qualified higher education expenses).

Prepaid Tuition Plans

Many states have have set up Prepaid Tuition Plans for their schools and, in some cases, the investment is guaranteed. If you know which college you want your child (or grandchild) to attend, prepaid tuition plans offer an excellent opportunity to pay for college credits and units and, in some cases, other higher education expenses.

By setting up a Section 529 plan for Prepaid Tuition, you get the chance to buy tuition at current rates. That way, if the tuition at your chosen school rises, you could end up paying a lot less for their college.

Prepaid Tuition Plans outline exactly how much the recipient (beneficiary) can receive, based on the number of years of college and other factors. The amount of money you set aside each year is determined by the prepaid tuition plan and the beneficiary’s age.

Prepaid Tuition Plans are usually for state of residency and other limitations (such of length of schooling) should apply. The timing of the enrollment (set-up) will be limited and/or vary depending on the state.

College Savings Plans

A College Saving Plan is more broad based: Many expenses can be covered, not just tuition. Of course, the expenses should be directly related to the cost of higher education. There are, however, limits to the amount of money you can contribute to these types of plans.

College Savings Plans usually do not offer guarantees, but you can have the money apply to either a child or an adult, whereas the Prepaid Tuition Plan is normally for a child.

College Savings Plans are usually purchased through a licensed broker or investment specialist whereas a Prepaid Tuition Plan is usually purchased through the state of the college/institution.

After the investment account is set-up, if you withdraw the money early (and not for college), there’s a 10% penalty (reported on your tax return) for the amount the money has grown (appreciated). The state tax effect of this transaction could vary.

Some states offer incentives to purchase into a Prepaid Tuition Plan, such as a deduction on your tax return during the year of your lump-sum investment.

It’s a good idea to seek the help of a professional with regards to a Internal Revenue Code (IRC) Section 529 plan.

Student Loan Collection Agencies

Many borrowers could soon be burdened with large amounts of unsecured credit card debt and federal student loans.

Right now, 10% of defaulted federal student loans are collected by private agencies.

By entering into a repayment agreement with a collection agency, any right to a review of the debt may be waived by the borrower and the opportunity to engage in loan cancellation or discharge may be lost.

A student loan collection agency could also increase your problems by taking a large contingency fee as a percentage of each payment that is received until the loan becomes current (or is sold or assigned to another agency).  Collection fees of up to 18.5% of the total loan balance have been authorized by statute.

Collection fees can be determined by the original loan document or by contract with the Department of Education.  In general, collection fees are only assessed on an actual payment that has been received by the collection agency.

The Department of Education (and the Department of the Treasury) further support collection agencies through extra-judicial methods including tax refund interception, wage garnishment and administrative offset of federal benefits.

However, a client’s tax refund can only be taken after the debt’s validity has been established and notice has been given to the borrower by the Department of Education.

This notice allows an attorney to obtain a review of the debt and evaluate cancellation, discharge and settlement.  You may be able to set-up a repayment plan based on your income and circumstances.

Some court rulings suggest that reasonable efforts to make payments or apply for income-based (or income-contingent) repayment plans must be made before student loans may be discharged in bankruptcy.

When the undue hardship standard (for student loan bankruptcy) has not been met, special repayment plans can bring you out of default, reduce your minimum payment and provide loan forgiveness on any remaining balance after 20 or 25 years.  If you qualify for Public Service Loan Forgiveness, your loans could be forgiven after ten years.

A quicker approach for a higher-income individuals (or one with a low student loan balance) involves allowing the client’s tax refund to be intercepted in order to avoid collection fees.  Because tax refund interceptions are applied only to principal and interest, the amount of the your tax withholding could be increased and, after several interceptions, a settlement offer can be made directly to the Department of Education.

Interception processing fees are imposed by the Financial Management Service and/or the IRS but are likely to be far less than collection agency fees.

Accrued collection fees (and, perhaps interest or principal) could be waived as part of any settlement, especially in light of a pending bankruptcy.

With this approach, your bankruptcy petition would need to be filed after the tax refund interception (in order to avoid the automatic stay provision).

Carefully planning your financial affairs can help you avoid a drastic increase in your total long-term indebtedness.