End of Debt Nightmare in Sight for Students Who’ve Defaulted on Loans

Senate committee votes out bill requiring NJ Higher Education Assistance Authority to offer loan modification and consolidation to students in default

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student debt
A Senate committee has taken another step to help those wrestling with student-loan debt, this time finally voting to require loan modification and consolidation for those who have defaulted on New Jersey college loans.

Sen. Sandra B. Cunningham (D-Hudson), chair of the Senate Higher Education Committee, said S-2056 is the last reform in a multi-bill package introduced following a charged hearing 18 months ago. At that time, numerous former students and family members criticized the New Jersey Higher Education Student Assistance Authority for its practices, which one senator called “predatory.”

“It was amazing to sit in a hearing and hear 24- and 25-year olds sit and tell you that they felt their life was over because they felt they would be in debt for the rest of their lives for trying to get a decent college education,” said Cunningham, prime sponsor of the bill. “We decided we had to do something about it … This is the last piece.”

Family’s last hope

One of the mothers, Deborah C. Gumpper, was at both that August 2016 hearing and the one on Tuesday when the committee voted 5-0 to approve the requirement that HESAA offer loan modifications and consolidations for those in default. She said legislation is her last hope for a resolution to her family’s longstanding battle to get rid of her son’s loan debt. HESAA judged his NJCLASS (New Jersey College Loans to Assist State Students) loan in default after 18 months of his paying some, but not all, of the monthly payments due to his inability to find a job and then getting one with low pay. She said the lawyer that the authority gave his defaulted loan to charged a $22,000 collection fee. Her son filed for bankruptcy.

“You have passed several bills that have helped borrowers, but none that have helped the defaulted borrower,” Gumpper said. “This is our last chance to get these loans back into repayment.”

The bill would require HESAA to offer consolidated loans with a fixed-interest rate to all borrowers currently in default on two or more NJCLASS loans, including those on which the authority or a collection attorney has obtained a judgment lien against a borrower.

“It’s our last ray of hope,” said Tracey Timony, whose daughter and nephew both defaulted. “We have to get our finances in shape and give them a future. We need to move this bill forward so we can get out of bankruptcy … We just need a chance to make it right. We want to pay our debt.”

A vicious circle

The women said the default judgments create a vicious circle: Being in default on a loan is a stain on a person’s credit record and can prevent them from getting a good job that would pay them enough money to be able to pay back a loan.

“This week, my son is going for the biggest job in his life,” Gumpper said. “If they run a credit check, they are not giving him that job.”

HESAA states that 95 percent of all loans are current. Gumpper said that an open public-records request yielded documents from HESAA that show almost 20 percent of NJCLASS Option 3 loans written between 2006 and 2016 are in default. One of just three types of loans, Option 3 allows a borrower to defer both interest and principal payments on a student loans until after leaving college. The average NJCLASS borrower had $16,000 in loans in 2016.

According to the bill HESAA would have to offer a consolidation and modification to any borrower who defaulted on an NJCLASS loan within the past 10 years. For those who have been employed full-time for at least three consecutive years, earning a minimum annual salary of $40,000, the authority would consolidate all defaulted loans into a single loan in the student’s name with a fixed monthly payment and a fixed interest rate set in accordance with the lowest NJCLASS loan interest rate in effect at the time the original loan was disbursed. For those working less than three consecutive years, either full-time or part-time, or earning an annual salary of less than $40,000, the authority would be allowed to require a co-signer. For those loans on which HESAA obtained a judgment lien, interest would be calculated according to court rules.

Eliminating late or consolidation fees

The authority would have 30 days from the time a borrower applies for the program to provide him with a summary sheet that lists all loans included in the consolidation loan and would have to vacate any collection fee or late fees that had been added to the loan balance. The bill would prohibit the authority from charging any origination fees for the consolidation loan under the program. HESAA also would have to report these modifications, including that the borrower is no longer in default, to the credit agencies

“The weight of student loans is an oppressive burden when you are starting out in a career and trying to make it on your own,” Cunningham said. “The goal of this legislation is to make loan repayment manageable so that the loan is repaid in a manner that allows the borrower to maintain a reasonable monthly budget, pay for all living expenses, and still contribute to the local economy.”

Several other bills dealing with HESAA loans are moving through the Legislature — among them the creation of a student loan ombudsman and an income-driven loan repayment program — or have been enacted. The authority itself has adopted some new rules, as well, capping the total amount a student can borrow at $150,000, for instance.

The loan consolidation bill now heads to the Senate Budget Committee, which could hear it as early as next week.

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