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Congress created the Public Service Loan Forgiveness program in 2007 to lure people into professions like teaching, nursing or public-interest law, where pricey degrees are the ticket of entry but wages typically aren’t high enough to pay them off. More than a decade later, now that the first borrowers are eligible, the program is in disarray, according to a Wall Street Journal analysis. More than 73,000 people have applied for debt forgiveness as of March 31 of this year, according to Education Department data, but just 864 have had their loans erased. A mix of factors combined to derail the program, including poorly written legislation, neglect by multiple administrations, mismanagement by servicers contracted to carry it out and antipathy from conservatives—particularly in the Trump administration—who would prefer the program had never been created. “The department’s goal of pursuing its conservative agenda is made easier by the fact that the law itself is a mess,” said Terry Hartle, senior vice president at the American Council on Education, a Washington, D.C.-based trade group representing colleges and universities. To qualify for forgiveness, borrowers must work for a government entity or nonprofit, hold a certain type of loan, enroll in one of several specific repayment plans and make 120 full and on-time monthly payments, or 10 years’ worth. Falling short on almost any of these requirements can mean disqualification. Read more. (Subscription required.) 

The issue of student loan debt and bankruptcy is addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy. 

A handful of homeowners who may be affected by mortgage servicer Ditech Holding Corp.’s bankruptcy have been named to a Justice Department-appointed committee, giving them a platform to amplify their concerns, WSJ Pro Bankruptcy reported. The Justice Department division that monitors corporate bankruptcy cases told Judge James L. Garrity Jr. in court papers filed on Thursday that it has created a committee for Ditech customers who have raised questions about how the company’s chapter 11 case will affect them. The Fort Washington, Pa., company, which collects mortgage-loan payments on about 1.4 million residential loans through Ditech Financial LLC, Green Tree Servicing Corp. and other associated companies, filed for bankruptcy on Feb. 11. It blamed its financial troubles on rising interest rates and its own heavy debt payments. The company faces thousands of litigation claims from homeowners who have notified the company of mistakes related to their mortgage accounts, according to documents filed in U.S. Bankruptcy Court in New York.

The $1.6 trillion in U.S. student debt may not pose a direct threat to the economy, but it’s causing anguish that goes far beyond financial concerns for the people who owe it. One in 15 borrowers has considered suicide due to their school loans, according to a survey of 829 people conducted last month by Student Loan Planner, a debt advisory group, Bloomberg News reported. Most student debt is held by people with balances on the lower end of the scale, with only 0.8 percent of the U.S. population owing more than $100,000, according to Deutsche Bank economists. They have labeled the issue as a “micro problem” for individuals, rather than a macro problem for the economy. Yet that still equates to 2.8 million people with around $495 billion in debt as of March, according to Department of Education data. Even more worrying is that it’s an increase of almost $61 billion since the end of 2017. Read more. 

The issue of student loan debt and bankruptcy is addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy. 

The Trump administration has retained private consultants to estimate potential losses in the U.S. government’s $1.45 trillion student-loan portfolio, and is weighing selling all or portions of the debt to private investors, the Wall Street Journal reported. A potential sale is one of several options the White House is considering to address the student-loan program’s deteriorating finances. The administration’s review has been prompted by a surge in recent years in borrowers’ defaulting on their loans and entering federal debt-forgiveness plans, developments that have severely drained money coming into the government’s coffers. The debt held by the government continues to balloon as interest accrues on existing loans and as new students take out debt to go to school. The Education Department has hired the consulting firm McKinsey & Co. to study how much money could be lost if low repayment rates persist, an agency spokeswoman said. Meantime, President Trump’s top economic advisers in the White House are studying ways to improve the program’s finances, senior administration officials said. One option under early consideration is to sell at least a portion of the portfolio, a plan that has been discussed previously by Republican policy makers but faces many obstacles, including whether the government could find interested investors at the right price. Under such a plan, the government would maintain its role as the nation’s primary lender to college and graduate students, but the government would raise money up front, instead of waiting years for borrowers to make payments, and take the debt off its books. Investors would then assume the long-term risk of the loans. Read more. (Subscription required.) 

The issue of student loan debt in bankruptcy is addressed in recommendations of the Final Report of ABI’s Commission on Consumer Bankruptcy. To download a copy of the report, please click here. 

Recent subprime-auto bonds from Prestige Financial Corp. and Exeter Finance Corp. are performing worse than anticipated, at a time when many competitors are at least meeting expectations, according to credit raters, Bloomberg News reported. The challenges both face may be remnants of a push for rapid growth a few years back, when these smaller lenders temporarily loosened credit standards to compete against big banks for loan volume, S&P Global Ratings said in a report on Monday. Competition intensified from 2014 to mid-2016 as several subprime auto asset-backed security issuers offset lower profit margins with higher loan volume. “Certain companies may have sacrificed adequate controls and dealer oversight for the sake of growth,” S&P analysts led by Amy Martin said in a Monday research note. “Renewed growth in subprime lending, which began in the second half of 2018, could intensify competitive conditions and lead to weaker performance.”

The Justice Department says an Oregon woman can’t use bankruptcy because she works for a staffing agency that recruits employees for the cannabis industry, part of a broader department policy imposing the federal pot ban on individuals whose income is tied to commercial marijuana, the WSJ Pro Bankruptcy reported. The U.S. trustee, a Justice Department bankruptcy monitor, said in papers filed in the U.S. Bankruptcy Court in Portland that chapter 13 filer Holly Christine Adair is violating the federal law outlawing marijuana because the agency she works for, GreenForce Staffing, is paid to place prospective employees at cannabis businesses. The U.S. Trustee Program is a Justice Department unit that polices the nation’s bankruptcy courts. A lawyer for Acting U.S. Trustee Gregory Garvin, whose region includes Oregon, Washington and other northwestern states, made the argument in a motion to dismiss Adair’s chapter 13 case, which she filed in January. Adair sought bankruptcy protection primarily to prevent a bank from foreclosing on her home, said her lawyer, Darin Wisehart. Adair isn’t producing or selling marijuana, but “her activities violate the [Controlled Substances Act] because she is assisting businesses that violate the CSA on an ongoing basis,” Garvin said. Although many states — including Oregon — have legalized adult use and sale of marijuana, pot remains illegal under federal law, which includes bankruptcy.

Credit-card losses at U.S. banks are outpacing auto and home loans at a rate not seen in at least a decade, Bloomberg News reported. For now, there’s no cause for panic as the strong U.S. economy and low unemployment means most consumers are able to stay current on debt payments. Additionally, new foreclosures and bankruptcies fell to the lowest level in at least 15 years in 2018. Yet the uptick in card losses is unmistakable. Credit-reporting company Experian Plc said some of the blame goes to banks offering credit to riskier borrowers, and the Federal Reserve has noted a spike in late payments by the elderly. The four largest U.S. banks had almost $4 billion in charge-offs from credit cards last quarter, and just $656 million from all other consumer lending. That’s the biggest gap since at least 2009. Card charge-offs now make up more than 80 percent of total consumer credit costs, up from 67 percent three years ago.