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Short-Term Fixes for Long-Term Student Loan Problems

Legislators introduce a raft of measures to address ‘egregious’ aspects of how student debt is handled in New Jersey

Credit: NJ Spotlight
Louis Greenwald, chairman of the Assembly Budget Committee, has held the post for nine years.

Just two months after learning of questionable practices by the authority that operates New Jersey's student loan program, lawmakers are taking quick action to address some of the problems.

An Assembly committee last Thursday approved three bills meant to ease the burden of some borrowers and their families, including a requirement that the New Jersey Higher Education Student Assistance Authority forgive outstanding loans of those who die or become permanently disabled. And lawmakers introduced a half dozen new measures designed to provide broader relief to those trying to finance a college education.

The Assembly's actions came a month after two Senate committees held a joint hearing on what at least one senator called "predatory" tactics by HESAA in light of a Pro Publica-New York Times investigation of the authority. It found that, among other practices, the agency told staffers not to volunteer information about a policy of considering loan forgiveness for students who die before making full repayment unless families ask about it. One senator called for scrapping the authority and starting over.

Assemblywoman Mila Jasey, (D-Essex) chair of the Assembly Higher Education Committee, said she expects an "ongoing conversation" about how to reform the agency that will take a lot of time and thought.

When opening last Thursday's committee hearing, she said lawmakers had heard the cries for help from borrowers and their families and were moving expeditiously "to deal with some of the most egregious tactics of the state's practices around student debt collection." Jasey said she was "shocked" to learn how the families of some students who had died were treated by HESAA as it demanded full repayment of the students' loans.

The committee quickly and unanimously approved a bill (A-2761) that would require HESAA to forgive the New Jersey College Loans to Assist State Students loans of any student who dies or becomes permanently disabled. It also would mandate the authority to defer payment of both the loan principal and interest for any student borrower who becomes temporarily totally disabled.

It also approved, with Republican members abstaining, a bill (A-2926) which would repeal a 1999 law that allows the suspension of the licenses of attorneys and other professionals for nonpayment or default of student loans. Jasey, who voted for the bill, said it does not make sense to suspend licenses and take away income because "we want them to keep working so they can pay off their loans."

This is just the start, though, to solving a complex problem with no easy answers.

The cost of a college education has been rising faster than inflation for more than a decade, at the same time as governmental support for higher education has declined.

A report released last week by New Jersey Policy Perspective, a progressive think tank, shows that New Jersey's investment in higher education dropped by 29 percent between 2008 and 2015. When increased college enrollment is factored in, the amount of state support per pupil has declined by 42 percent.

While higher education cuts were a national trend, other states have begun increasing aid to colleges, according to the report, Debt Sentence.

"Nationwide trends for state funding for public universities show that states are finally investing more toward higher education than in the immediate years following the Great Recession," the report states. " These trends, however, are not applicable to the Garden State, as state funding since 2004 has trended downward with no real sign of change."

As state aid to public colleges declined, tuition has shot up -- by $6,000 over the last decade, or $4,000 even when adjusting for inflation. The combination, the report states, has led to "a drastic shift in the responsibility of paying for a college education from the state to students and families, and is particularly troubling at a time of stagnant or declining incomes for most New Jerseyans." The average cost of tuition and fees now eats up 12 percent of the median income of a typical family of four in the state, which is almost double what it was two decades ago.

Brandon McKoy, an NJPP policy analyst, said the state would have to spend $1.2 billion "just to get back to where we were."

To be able to afford the growing cost of tuition, students have taken on greater amounts of debt. A recent report on regional household debt from the Federal Reserve Bank of New York stated that the typical New Jersey student borrower has an average school loan balance of $32,700; the national average is $29,700.

David Hughes, a professor at Rutgers University and president of its American Association of University Professors-American Federation of Teachers chapter, said the trend is a change from the past, when "higher education used to be considered a public good," worthy of government investment.

With the financial need so great and the state's budget troubles continuing, lawmakers are cognizant that the problem is going to be difficult to solve and needs creative solutions to lessen the burden on students trying to afford college.

To start, Jasey and Assemblyman Gary Schaer, (D-Passaic) chairman of the budget committee in the lower house, last Thursday introduced a five-bill package dealing with student loans and other college reforms.

“Too many students today are unprepared entering into a higher education system that leads them to incur crushing student loan debt," Schaer said. "We need to provide a path forward for New Jersey students by allowing them access to college curricula in high school, opening higher education possibilities and exposing them to the academic rigor ahead, and then providing them an option for a debt-free future.”

One bill (A-4084) would require HESAA to set repayment amounts based on a borrower's ability to pay. Several borrowers have said they were forced into bankruptcy because they could not meet their required loan payments when they were unemployed or underemployed. This bill seeks to solve that problem by tying repayment of NJCLASS loans to income:

  • Borrowers' monthly payments would be capped at 10 percent of discretionary income;

  • After 20 years of payments, any remaining debt would be discharged;

  • Those with incomes at or below 150 percent of the federal poverty level would not have to make any monthly payments;

The bill would also set up a loan rehabilitation program, which many borrowers have been demanding, so that a person could get his loan out of default status and continue to make payments on it.

Another measure (A-4086) would create the Two to Four Loan-Free Students Program. Similar to NJ STARS scholarships for high achievers, this program would use state Tuition Aid Grant money to provide free schooling for low-income students. Those who qualify for TAG assistance and are accepted at a four-year public college could instead complete the first two years at a county college, then transfer to the four-year college to earn a bachelor's degree tuition free.

The Succeed in New Jersey Program (A-4085) would have the state spend up to $10 million a year repaying a maximum of $6,000 in loans annually for as many as three years for low-to-moderate income borrowers who work in careers deemed to be in high demand by state labor officials.

The total cost of college would be reduced by the College-Ready Students Program (A-4087). It would allow public high school juniors and seniors to take dual enrollment courses at county colleges tuition-free. Some high schools currently allow students to take dual-enrollment courses and earn college credit, but they have to pay a fee in order to do so. Students could get up to 12 credits tuition-free through this program.

A final bill in the package (A-4088) would create the High School to College Readiness Commission, which would be charged with recommending ways to better prepare students for college and raise awareness among students and their families of higher education costs.

Assembly Majority Leader Louis Greenwald, (D-Camden), introduced another bill last Thursday designed to help make it easier for students to repay their loans. His bill (A-4117) would allow counties to leverage their improvement authorities to refinance student loans for borrowers with high interest rates, thus easing their debt burden. The authority would have to provide at least two different types of payment plans, and could not refinance loans if payments resulted in financial hardships for the borrower. It would be similar to a program Maryland enacted earlier this year.

“Student loan debt has crippled an entire generation, making it nearly impossible to start a family, buy a home, or open a business,” Greenwald said. “Creating this program will increase our regional competitiveness and enable us to provide real financial incentives for graduates to live and work here."

Because the bills are new, none includes a fiscal note yet so their full cost is unclear. The Succeed in New Jersey bill would be capped at $10 million a year, and the College-Ready Students program has an estimated price tag of $3.8 million. The Two to Four Loan-Free Students program uses existing TAG awards and Schaer said he expects it to be revenue-neutral.

Jasey said the state will need to do a lot more, though, to really help those seeking a way to afford a college degree. "This is a really complicated and complex situation," she said. "Our package is meant to deal with the short term. We are going to have to look at the long term, too."

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