[T Ruth]

That might be a problem for this lawsuit, but I would guess that under state law, such action would not negate forgiveness of indebtedness income. Rather, it would be a gift by the individual to the loan processer. It may also be a gift under federal law, and depending on the amount, may require the borrower to file a federal gift tax return, using up some of his lifetime gift tax exemption. That would also constitute damages that would sustain standing.

Thus, my guess is that under state law, the borrower would have forgiveness of indebtedness income followed by a taxable gift. If the state also has an estate and gift tax, that would be additional damages.

Further, I would think that if such adjustment is discretionary with the loan servicer, then the borrower cannot count on it. I would think the law would not presume the discretionary action of a private actor.

Further, would the loan processor get a windfall double payment, or would the loan processor have a duty to repay the government? If the loan processor has a duty to repay the government, it is not likely that the loan processor would undertake a lot of paperwork and unnecessary additional payment processing for no gain.

[olivia3boys]

if such adjustment is discretionary with the loan servicer

I think what will happen in this case is that the Dept of Education will give guidance to the loan servicer to adjust per borrower request. It won’t be discretionary with the loan servicer. The loan servicers are under contract to the Department and follow guidance given. They might request some kind of contract change request and more $$ but I’m sure the Department of Education will grant all that in order to make the lawsuit go away.