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Pain Relief for College Students Overburdened by Loan Debt

Legislators turn their attention to problems facing student borrowers, backing bills that would keep them from being overwhelmed by loan repayments

student debt

New Jersey lawmakers, who were disturbed in the last legislative session by the practices of the agency that writes student loans, are signaling that they have not forgotten about the problems facing borrowers, moving several bills designed to make it easier to pay off those loans.

At the same time, there is hope that a change of leadership at the New Jersey Higher Education Student Assistance Authority will make the agency more sympathetic to the plight of tens of thousands of borrowers trying to pay off loans that averaged almost $16,000 per person in the 2016 fiscal year.

Advocates believe there is reason for hope after HESAA announced on Monday that it has pulled out of the National Council of Higher Education Resources, an organization that has been lobbying Congress and the Trump administration to stop state efforts at regulating federal student loans.

“On behalf of New Jersey’s students and families, we are taking a stand against NCHER’s efforts to lobby against states’ ability to protect student borrowers,” said David Socolow, who became HESAA’s executive director two months ago.

$33.5 billion in loan debt

New Jersey Citizen Action praised the move as an indication that the agency is interested in reform and concerned about student loan debt, which it placed at a combined $33.5 billion for New Jerseyans. The group said the state paid NCHER almost $150,000 in dues between 2010 and 2017.

“New Jersey has the right and the responsibility to hold student loan servicers accountable, and clearly HESAA understands it should not be working against their own state’s interests,” said Beverly Brown Ruggia, financial justice organizer at Citizen Action.

It called for the passage of S-1149, which would establish a student loan ombudsman within the state Department of Banking and Insurance and provide for the regulation of student loan servicers by the department. That would give the state the power to “prohibit misrepresentations, payment misapplications, and false credit reports,” Ruggia said.

The bill, cosponsored by Sens. Sandra Cunningham (D-Hudson) and Chris Brown (R-Atlantic), passed the Senate easily in late February and is awaiting action by the Assembly Higher Education Committee. Both houses had passed this same measure in the waning days of the last legislative session, but it was pocket vetoed when former Gov. Chris Christie did not sign it before leaving office.

This measure was one of a package of measures lawmakers introduced in the summer of 2016 after hearing borrowers and their family members detail practices employed by HESAA in writing and collecting its NJCLASS (New Jersey College Loans to Assist State Students) loans that some legislators termed “predatory.” Most never made it into law, although Christie did sign one measure capping the amount college students can borrow from HESAA and requiring them to exhaust federal student loan options before taking out an NJCLASS loan.

Other measures

Reintroduced this session, other measures are again moving through the Legislature.

In addition to the loan ombudsman bill, the Senate has already passed S-1148, another bill co-sponsored by Cunningham and Brown, that would require HESAA to establish an NJCLASS loan-repayment assistance program for borrowers who suffer bankruptcy or other significant loss of income during the repayment period. The bill stipulates that for two years, borrowers would have to pay no more than 10 percent of their disposable income above 150 percent of the federal poverty level and that payment would reduce the loan principal, while HESAA would pay the interest. HESAA would have to tell eligible borrowers about the program. Also pocket vetoed at the end of the last session, the bill passed the full Senate without objection and awaits action by the Assembly Higher Education Committee.

In a fiscal note to the bill, the Office of Legislative Services wrote that it will result in increased costs for HESAA but could not determine the amount. It also would expand to all borrowers a repayment-assistance program the authority put in place last year as a result of the complaints by borrowers and at the prodding of legislators. That program is currently available only to those who applied after May 31, 2017 or who applied earlier but began taking classes last August or later.

The most recent bill to advance is also the most comprehensive. S-766, sponsored by Cunningham, along with Sens. Robert Gordon (D-Bergen) and Robert Singer (R-Ocean), would require HESAA to establish an income-driven repayment plan and a loan rehabilitation option for NJCLASS borrowers. It unanimously passed the Senate Higher Education Committee last week and is now pending before the Senate Budget and Appropriations Committee.

“Student borrowers are struggling under the weight of oppressive student loan repayments,” Cunningham said. “This bill provides borrowers with options that allow them to meet their repayment obligations without having to gut other items in their monthly budget or deplete the discretionary income that fuels our local economies.”

Basing payments on income

One major aspect of the legislation would tie all repayments to income. Borrowers would be required to pay no more than 10 percent of discretionary income each month, with those living at 150 percent of poverty or less eligible to pay nothing. After 20 years, any remaining debt would be discharged.

The other key provision of the bill would require HESAA to establish a loan rehabilitation option to enable borrowers to move out of loan-default status. To be eligible, a borrower would have to make at least nine of 10 payments required under a monthly rehabilitation agreement with HESAA. Any repayment agreement could not require a borrower to pay more than 15 percent of his discretionary income. HESAA would have to tell borrowers about this program.

“Cuts to our state’s higher education funding have resulted in New Jersey being the fourth most expensive state in the nation for tuition and fees,” Cunningham said. “Excluding room and board, the average cost in 2016 for in-state students at a four-year public college or university was $13,560. With the typical New Jersey college student graduating with more than $28,000 in student loans, we need to provide commonsense relief that will prevent extended personal debt for our young people.”

She said New Jersey needs to put in place repayment options that are more realistic and enable a borrower to succeed in paying off loans, noting that the U.S. Department of Education is beginning to offer a variety of repayment options to individualize plans for diverse financial situations.

This bill passed the Senate last year and made it to the floor of the Assembly, but the lower house did not vote on it. Some worry it may be too ambitious to pass this session either, as it could wind up costing the state money if it is forced to forgive large numbers of loans. Last year, OLS said it could not determine the cost of the measure, but said the income-driven repayment option would lead to some borrowers initially paying less but ultimately paying more than under a fixed-rate repayment, while those who wind up having their loans discharged would pay less.

According to HESAA’s 2016 annual report, NJCLASS issued more than 10,000 loans totaling nearly $163 million that fiscal year — an average of $15,863 per student borrower. While the program is administered by a state authority, the money lent comes from private bonds. Students can borrow an amount up to the total for tuition, room, board, fees, books, and other related costs, minus any other financial aid they receive. Last year, HESAA capped the total amount a student could borrow at $150,000.

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