Student Loan Executive Order Exception

Posted on June 10, 2014 at 4:17pm by

President Obama has signed an Executive Order affecting approximately 5 million student loan borrowers. It primarily affects two groups of borrowers:

  1. Those with federal direct loans who borrowed before October 2007 and;
  2. Those who have not borrowed since October 2011.

Payments will be capped at 10% of the borrower’s monthly income. As of the date of this writing, it is not known if this applies to a borrower’s gross pay or take-home pay. The cap is hoped to be available to these borrowers by December 2015. This new repayment cap is an addition to other repayment plans based on income, such as the Income-Based, Income-Contingent, Income-Sensitive, and Pay As You Earn repayment programs.

Student loan defaults and high monthly payments continue to be growing concerns in America. While these repayment options are available for various federal loans, they are not available for private student loans. This Executive Order does not change that fact. Private student lenders are not required to offer any of these repayment plans to their borrowers and are often not willing to negotiate the payment terms.

In the 8th Circuit, which includes Missouri, North Dakota, South Dakota, Nebraska, Minnesota, Iowa, and Arkansas, the totality of the circumstances test is used to determine whether or not student loans are dischargeable in bankruptcy. This test is much less stringent than the widely-used Brunner test, which is used in nearly every Circuit in the United States. Depending on the circumstances, your student loans may be dischargeable in bankruptcy. If not, one of our attorneys may be able to help you explore your payment options. Contact our office today at 816-281-6349 for a free phone consultation to better assess your options.



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