Bankruptcy program aims to relieve student debt

In Florida, 2.4 million owe $85.5 billion

Saddled with $44,000 in student debt, Teresa Starrs was working full-time for the state Department of Juvenile Justice when she fell behind on her mortgage and her home went into foreclosure.

“I couldn’t pay my bills,” said Starrs, 58, who lives in Volusia County. “I was about to lose everything.”

Amid growing national concerns over student debt, the U.S. Bankruptcy Court that covers Central Florida is starting a new program intended to help borrowers such as Starr more quickly pay back student loans and navigate repayment options.

The program is for people who have filed for Chapter 13 bankruptcy, which enables debtors with regular income in 35 counties, stretching from Duval to Collier, to develop a plan to repay all or part of their debts.

It comes as student debt has been in the national spotlight recently and a focus for several Democrats seeking their party’s nomination for president in 2020. Some have proposed allowing students to attend public colleges and universities debt-free or tuition free. A couple of top contenders have said they want to cancel loans for some borrowers.

In the U.S., 43 million people carry school debt totaling

more than $1.4 trillion. Student loans are the secondhighest debt category behind mortgages. In Florida, 2.4 million Floridians owe $85.5 billion.

That’s largely because tuition hikes have outpaced wage increases and inflation. Between 2006 and 2016, the price of college tuition and fees increased 61 percent, compared with 21 percent for other items, according to the Bureau of Labor Statistics.

Many students rely on loans to pay tuition bills and other college expenses. Federal Judge Michael Williamson said he often asks young attorneys whether they have student debt, and “everyone raises their hand.”

“That didn’t exist when I went to law school,” said Williamson, the chief bankruptcy judge for the Middle District of Florida, who graduated from Georgetown University’s program in 1976.

Williamson, who signed the order outlining the program, described the country’s debt crisis as “tragic.”

Over the past decade, Orlando’s student loan debt increased from $400 million to $1.26 billion, according to Experian, a consumer credit reporting company. Lewis Roberts, an Altamonte Springs attorney who specializes in debt issues, said it’s a frequent concern for his clients.

“I would say at least half, if not more, of my debt consultations have some sort of student loan issue,” he said.

The new Florida program, which takes effect Aug. 1, is similar to an initiative for mortgages the Middle District court started a decade ago in the wake of the Great Recession the court says has saved more than 6,000 area homes. Proponents say the bankruptcy initiative is the first of its kind in the country and they’re hoping other courts will follow.

Unlike other types of debt, student debt generally can’t be cancelled and there aren’t a lot of refinancing options, as there are for mortgages. Debtors typically stop making payments on student loans when

they’re in the bankruptcy process, and those who do try to pay sometimes have the money returned to them because those loans are in forbearance. That’s a problem, because they’re racking up interest that drives up the total amount owed.

Laurie Weatherford, the Chapter 13 bankruptcy trustee in Orlando, said she’s seen cases where people owe more in interest on their student loans than the original amount.

And debtors sometimes don’t realize they’re eligible for income-based repayment plans or don’t know how to get on one. But the court’s program should allow more people to chip away at their loans as they complete the Chapter 13 bankruptcy process, which typically lasts five years.

The program will include an online portal where debtors can upload information that will allow them to work out plans with lenders so they can pay what they can afford.

That’s particularly helpful for people are eligible for Public Service Loan Forgiveness, a national program for people who work for the government, nonprofit organizations or other groups that provide public services. To qualify, people also must be using an income-driven repayment plan and make 120 qualifying payments.

“The benefit is they would be on track for forgiveness in the future,” said Tammy Branson, a senior paralegal for Branson Law, an Orlando firm that specializes in consumer bankruptcy. “Some of them are in default and haven’t paid student loans in a long time.”

People in the medical field in Florida, including doctors and nurses, can also lose their licenses if they default on student loans.

More commonly, young adults can’t afford to purchase homes because they’re already paying the equivalent of a mortgage payment each month — except it’s a student loan, Williamson said.

“Who has enough money to pay for two houses?” he asked.

But the troubled borrowers aren’t just 20- and 30-somethings. Nearly 5 million people 50 and older nationwide carry a total of $205.6 billion in student debt, according to the DOE. And Weatherford and others say they see middleaged and older people who have deferred their loans for years.

“I have debtors who are over 65 and on Social Security and file Chapter 13 because the student loan corporation is coming after them,” Weatherford said.

Looking at her pay stubs, Starrs realized her wages from her job that pays less than $40,000 per year were being garnished. After talking with an attorney, she started the bankruptcy process three years ago, got on an income-based repayment plan and saved her home near Daytona Beach.

Starrs hadn’t always intended to go to college. She initially juggled a series of part-time retail jobs after moving to Volusia in 1997, but after her children were through school, she enrolled at what is now Daytona State College.

“I decided I was not going to make it without a degree,” she said.

Starrs later transferred to the University of Central Florida, where she graduated with a bachelor’s degree in criminal justice in 2014. Now, she’s raising her 7-year-old granddaughter on her own and is hoping to cancel her loans through the Public Service Loan Forgiveness program.

Until then, getting on an income-based repayment plan, she said, has been a “godsend.”

That’s exactly the type of relief Branson said she’s hoping others in the bankruptcy process will find. She said she and her husband, attorney Robert Branson, decided to try to work with the court to help student loan borrowers after attending a national bankruptcy conference last November.

Seven months later, Williamson signed the administrative order creating the program, which is “hyper speed” for legal matters, Tammy Branson said.

“We just feel like it’s a national crisis and we’re just glad that the bankruptcy court cared enough to come up with a venue to help debtors come up with a process to pay back their student loans,” she said.