Attorney Paul Krasker helps clients modify home mortgages or work our foreclosure lawsuits. During the past few years, Krasker began noticing a common theme: Many clients were saddled with enormous amounts of student loan debt, too.
“We realized that even if we got a great modification, they’re still going to be hurting and in financial distress,” Krasker said.
Now, Krasker, of the Law Office of Paul Krasker in West Palm Beach (kraskerlaw.com), has developed a service to help people make use of new federal laws allowing for student loan debt restructuring.
Using new federal programs, borrowers with government-backed student loans can lower their monthly payments, and in certain circumstances, even have their loans reduced or forgiven. Krasker said the programs are poorly advertised, so that is why he established the Student Loan Department at his firm.
Reducing student loan debt is an important way to help people struggling financially, Krasker said. Unlike other types of debt, such as credit card debt, student loans cannot be discharged in a bankruptcy filing. This means that borrowers who have defaulted on student loan debt will continue to have their credit ruined for longer than the seven-year bankruptcy stigma, he said
And student loan debt now exceeds credit card debt, having risen to more than $1 trillion dollars, according to the Consumer Finance Protection Bureau. Most of that student loan debt is federal. Currently, the average student loan debt per borrower is about $28,720, with college students graduating with debt equivalent to about 60 percent of their annual first year income, according to a June report from Congress’ Joint Economic Committee.
The U.S. Department of Education now is consolidating qualifying loans, allowing the borrower to make one simple payment based on income and family size, with payments as low as $10 a month. Krasker said the most attractive part is that after a certain number of payments, the remaining balance can be forgiven.
There are a host of other programs as well, including loan restructure programs specifically designed for people who work in public service related jobs, including teachers, nurses and those working at non-profit organizations.
The programs are available to borrowers who are current on their loans, as well as those who have already defaulted on their loans.
Although the programs are not available for borrowers of private student loans, Krasker there is activity in Congress to expand programs to private student loans in the future.
Critics of the student loan workout/forgiveness programs may question whether it is fair to forgive the debt of students who willingly agreed to repay the money.
This is especially the case since in the past, student loan borrowers have worked for decades to pay off their debt.
Krasker said he doesn’t disagree: “It is, at its essence, government assistance for some citizens without providing a similar benefit for others.”
But as someone who has worked with people to defend foreclosures, modify home mortgages and assist in short sales, Krasker said even banks eventually concluded the economy would never gain permanent traction unless lenders began working with mortgage borrowers.
The same, Krasker said, is true for student loan debt, which is so enormous it is forcing people to delay major life decisions, such as buying a home or car. In fact, the rate of home ownership is 36 percent less among those now repaying student loan debt, according to research from ProgressNow.
By all accounts, tepid consumer spending is an impediment to robust economic growth.
People seeking to move ahead economically are at an special disadvantage today. While a college education is the surest path to economic advancement, college costs have risen so enormously that higher education is becoming prohibitive for even those who have worked or saved for college.
Even if students graduate, they often cannot find work in their chosen field, due to the still weak employment market.
But it’s not just recent college grads who are in trouble.
Many people who once worked in their field of expertise lost their jobs during the recession — and a number of those jobs have not returned, Krasker said. The student debt remains even as workers take on contract work, or jobs below their skill level, in an effort to survive, he said.
Krasker said while critics may point to college students who blithely took on debt and partied through four years of education, with little effort to find a job post-college, “the reality is that, just like in mortgage modifications, we generally find people who are hardworking, in a difficult situation and need help.”
That’s why Krasker is so positive about the benefits of the new student loan programs.
“The more you have, the more you can save,” he said. “It’s a significant benefit to those who have defaulted (and are stuck paying default rate interest rates.) It’s a benefit to those who have not defaulted….Everyone who has guaranteed student loans should do it. Period.”
Krasker said borrowers don’t need to use a student loan service to work out their loans, but the process is complicated. He said there some agencies that have sprung up, requiring a large upfront fee, and then not much follow-up.
Krasker says his firm’s fees are modest, from $350 to $450 in the first month and then $45 a month until the negotiations with the Department of Education are complete, a process that takes four months or less. The annual follow up paperwork is expected to be around $200.
Krasker said he has hired a specialist trained to assist clients with consultation, application, and tracking to participate in the loan program.
Krasker began the service this year and says he’s helped about 50 clients reduce student loans. In some cases, monthly loan payments have dipped to $30 a month from $300. He said clients average between $50,000 to $90,000 in federally guaranteed student loan debt, with the debt owed to finance education in undergraduate and graduate programs at universities, as well as for-profit private universities.