Putting the Force of Law Behind Students Trying to Pay for College

Colleen O'Dea | January 9, 2018 | Education
Four bills looking to ease “predatory” practices employed by some New Jersey loan providers are waiting for the governor’s signature

New Jersey lawmakers have sent Gov. Chris Christie four more bills aimed at helping students pay for college, either through loans or state grants. They fell short of passing all the measures introduced 18 months ago in an effort to rein in the state’s student loan agency, however.

Legislators had put together a package of bills as a result of hearings regarding the practices employed by the state Higher Education Student Assistance Authority in writing and collecting student loans. Some lawmakers called these practices “predatory” and “loan sharking.” While some bills floundered, legislators hoped that, in total, the bills Christie has already signed, and the new measures they sent him last Friday and yesterday, will provide substantial relief to struggling students and their families.

The bills apply to all students who got their loans through HESAA or another loan servicer operating in New Jersey — even if they are attending school out of state.

Speaking up for students

A prime assistance measure now on Christie’s desk, S-3198, 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. The governor would appoint the ombudsman, with Senate consent. The loan advocate would help address borrowers’ complaints and also report to the Legislature about problems with the student loan system and make recommendations for reforms.

“We need to make sure that borrowers are aware of their rights and responsibilities prior to taking out student loans and ensure that they won’t be exploited by student loan servicers,” said Sen. James Beach (D-Camden). “This legislation is about working with borrowers and not against them in order to establish a more fair system to suit them long after they have graduated.”

The other loan-related bill, S-3218, would require HESAA to establish a loan repayment assistance program for the New Jersey College Loans to Assist State Students Loan Program, or NJCLASS, the state’s major student loan program. The program is designed for borrowers who suffer bankruptcy or other significant loss of income during the repayment period. HESAA would have to tell eligible borrowers about the program. For two years, borrowers would have to pay no more than 10 percent of disposable income over 150 percent of the federal poverty level and that payment would reduce the loan principal, while HESAA would pay the interest.

Introduced in mid-2017, the bill does not fully accomplish the goal of one part of the original package, but it is in the same spirit as that measure in helping those who find themselves in difficult financial straits. The original bill, A-4084/S-2573, had sought to require HESAA to establish income-driven repayment and loan rehabilitation programs for all borrowers. While it passed the full Senate, it stalled in the Assembly.

Out-of-control student debt

“Student debt is growing out of control and if we do not come up with options and strategies to help graduates manage their loans, this debt will follow these graduates well into adulthood,” said Sen. Sandra Bolden Cunningham (D-Hudson) and chair of the Senate Higher Education Committee. “There is a growing need for repayment-plan options, including income-driven options, and for additional assistance for borrowers who are having difficulty repaying their loans but feel they have nowhere to turn for help.”

Legislators moved to place some controls over HESAA after hearing from a number of borrowers who said the agency’s loan collections process had forced them into bankruptcy. Several New Jerseyans had testified at a legislative hearing that HESAA had misled borrowers about flexible repayment options; did not allow for refinancing or loan consolidation; considered loans in default even when borrowers made partial payments and sent them to collection where they faced additional fees; and refused to even volunteer information about the possible forgiveness of debt when students died.

The Senate passed and sent to Christie two other bills, these concerning state scholarships and grants.

Student all-stars

One measure, S-888, would continue eligibility for NJ STARS and NJSTARS II scholarships for students who need to take a reduced number of credits in one or more semesters due to a physical or mental health condition.

Under current law, a recipient of an NJ STARS full tuition scholarship to a state county college or NJ STARS II, which provides $2,500 a year to continue studies at four-year colleges in state, must maintain status as a full-time student to continue to receive the funds, unless on a medical or emergency leave or called to military or National Guard duty.

“Current law does not account for scholarship students who may be suffering from a physical or mental impairment that does not require a full medical leave, but can be addressed with a lessened course load,” said Sen. Linda Greenstein (D-Mercer).

The other bill, A-4763, would make more students eligible for state Tuition Aid Grants, awarded to needy students based on family income and financial status. It would prevent HESAA, which administers the program, from counting early withdrawals from retirement plans taken as a result of financial hardship as income or wealth when determining a borrower’s eligibility for a grant. Bill sponsors said there have been instances where families were penalized when they withdrew retirement savings early to help pay a child’s college costs.

“Student loans are a significant burden to many New Jersey students and their families,” said Assemblywoman Mila Jasey (D-Essex). “Parents who have to make a withdrawal from their retirement funds in order to make ends meet should still be given every opportunity to seek financial assistance that will help them pay their college tuition.”

It is unknown whether Christie will sign these measures, although he has enacted a number of other loan-reform bills lawmakers passed during this session.

$1.9 billion in outstanding loans

NJCLASS issued more than 10,000 loans totaling nearly $163 million in the 2016 fiscal year — an average of $15,863 per student borrower, according to the authority’s annual report for the year. The authority’s most recent audit showed it had almost $1.9 billion in outstanding loans. 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.

Christie also signed bills earlier this year that require HESAA to forgive the remaining balance on loans of borrowers who die while in school or in repayment; repeal a law that had allowed the state to suspend the professional licenses of attorneys and others for nonpayment of state or federal student loans; create a commission charged with helping better prepare students for college by teaching them about college costs and student-loan debt and repayment; and increase transparency and accountability of HESAA.

Four other bills did not make it to Christie’s desk. These would have created new scholarships for low-income students, had the state repay some loan amounts for some borrowers who work in high-demand careers, allowed high school students to take dual-enrollment courses at county colleges for free, and let county improvement authorities refinance some student loans.

The governor had conditionally vetoed a bill, S-2214, that would have required colleges to increase transparency in reporting their costs to students. While the Senate agreed with the conditions imposed by Christie, the Assembly failed to do so, so that bill will die.

Christie has until noon next Tuesday to sign those bills that did make it to his desk or they will not become law.