Actually in my opinion changes are long overdue to the Dept. of Education's rehabilitation regulations, to give student loan borrowers a realistic way to get their loans out of default. On November 1, 2013, the Department of Education (ED) issued issued final regulations that make big changes to student loans.

One of the most important for some of my student loan-plagued clients is that if they are trying to rehabilitate or "rehab" a defaulted student loan. A borrower must make 9 "on time" payments over a 10 month period of time to qualify to get a loan out of default. The problem has been that the ED's debt collectors have always seemed to want a larger payment for the rehab payments than the borrower can afford to pay.

This is true even though the student borrower intends to repay the loan using Income-Based Repayment (IBR) once the loan is out of default, and the rehabilitation payments are supposed to be "reasonable and affordable" in amount.

Under the new ED regulations, the debt collectors must use the IBR formula to determine the amount of the "reasonable and affordable" rehab payments. This should make it much easier for borrowers to rehabilitate their defaulted loans. I've had numerous frustrated former students come into my Houston law office over the years, that wanted to rehabilitate their loans and get out of default, but couldn't afford the initial 9 payments because they were not set in a realistic amount that they could pay.

The new regulations are effective July 1, 2014 and apply to both FFEL (guaranteed) and Direct Loans. I understand that even though the new regs don't go into effect until July, that some collectors are using the IBR formula now to compute the reasonable and affordable amount.

Hopefully this change will ease some of the pressure on borrowers. If something isn't done, there is going to be another crisis similar to the mortgage crisis. In my opinion, many folks have been allowed to borrow more in student loans than they can ever afford to repay. What do you think about this? Please post your comments below.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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