Rodger Love filed an adversary proceeding back in January 2020 that Richard Fossey wrote about here.
In that Adversary Proceeding, Love made the argument the Department of Education should allow him to discharge his student loans because they “would place an undue hardship upon Plaintiff and his minor daughter if said debts are not discharged.”
Love made the argument that being forced into an Income-Driven Repayment (IDR) was nonsensical since he would “never pay off the accrued interest on his loans.” He’s right.
As Fossey noted, “I’ll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan. But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan. And since the payments won’t cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045. And whatever amount is forgiven will be taxable to him as earned income.”
The current Department of Education found a way to resolve the case without allowing the discharge of the student loan debt.
In a solution that you rarely see, the Department of Education settled for less than was owed.
In the settlement agreement, the government stated Love owed $96,564 but would allow him to settle his account for $23,400 with payments of $195 per month for 120 payments. – Source
Let That Sink in for a Moment
Rather than force Love into another bad IDR that would never be repaid, he was able to secure a settlement at zero percent interest with ten years of payments. Love can also prepay the settled amount at any time.
The Department of Education also made the deal a little sweeter, “Plaintiff shall be entitled to request deferment or forbearance in accordance with the laws and regulations governing deferment and forbearance in effect at the time of the request. Plaintiff shall additionally be entitled to take advantage of any other generally available moratoriums on student loan payments. Months in which Plaintiff’s account is in deferment or forbearance, or a moratorium is in effect do not count toward the 120 monthly payments required by this Stipulation and do not constitute default. However, any installment payments voluntarily made by Plaintiff during periods of deferment, forbearance, or when a moratorium is in effect, will count toward the 120 monthly payments required by this Stipulation.”
This Deal Made My Chin Drop
We can only hope that the willingness of the Department of Education to enter into a debt settlement agreement will create a new pattern of action that can give federal student loan debtors hope.
This might be the first of a new wave of resolving the massive wave of student loan defaults about to crest when federal student loan payments begin again.
According to a recent student loan survey, “A new survey of 23,532 student loan borrowers finds that 92% of fully-employed borrowers are concerned about being able to afford their payments due to rising inflation when the current pause on payments and interest expires on May 1.”
As CNBC wrote in a recent article, “Once payments restart, the amount due will be largely the same since interest on most federal student loans was suspended during the government’s payment pause. However, the cost of living has dramatically changed.”
Historically, the Department of Education would force people into decades of financial slavery with Income-Driven Repayment plans. But maybe this settlement strategy is something we will begin to see more of.
It is a good compromise, and it makes sense, so hopefully, that doesn’t doom more settlements. Unfortunately, government and logic are not good friends.
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