A college education is a pillar in today’s world. It has a direct correlation to an individual’s economic success in life – that is, if they can afford it.
College affordability is a major concern for countless young New Jerseyans and their families. Navigating the student loan industry can be frustrating, intimidating and costly. At its inception, the New Jersey College Loan to Assist State Students (NJCLASS) Program was intended to address these very common concerns. Unfortunately, a policy’s impact does not always live up to its intent.
In the summer of 2016 the New York Times published an in-depth exposé on the predatory practices of the NJCLASS Program, and ever since, my colleagues and I have been working to address their criticisms. At the end of January the Senate passed the final piece of the reform package to finish addressing the program’s most glaring shortfalls.
The New York Times exposé focused on the way borrowers were treated during their repayment period. At that time, the program was not offering forgiveness for deceased or disabled borrowers, nor was it offering income-based repayment options. There was no opportunity for borrowers to rehabilitate their loans once they were in default, and to add insult to injury, these particular loans carried the weight of the State behind them and they did not need a court order to garnish wages or tax returns. During this time, as a result of suing many borrowers for their inability to pay, HESAA grew the portfolio of NJCLASS loans to $2 billion.
The legislature made significant efforts to address these issues in 2016. During the hearing held after the article came out, we heard heartbreaking testimony from families struggling to pay back their students’ loans. Some families were in such financial despair that they had no choice but to declare bankruptcy, which still did not relieve them of their student loan debt.
Following the hearing, we passed a bill requiring loans to be forgiven when a borrower dies or becomes permanently disabled, which brought us in line with the federal student loan policy. The bill, which also required loans to be deferred when someone was deemed temporarily disabled, was signed into law by Gov. Chris Christie.
One of the most challenging aspects of reforming the NJCLASS loan program has been creating income sensitivity repayment options and a remedy for defaulted loans. Because the loans are underwritten by state bonds, the state is required to pay purchasers the amount agreed upon in the bond, therefore the state would be responsible for any amount not repaid by the student loan borrower.
Although there were many roadblocks along the way, with significant help from the new Executive Director of HESAA, David Socolow, and the Legislature, we have moved legislation that addresses these issues. Two bills I sponsored with Senate President Pro-Tempore and Education Chairwoman M. Teresa Ruiz will offer income-based repayment options and a way for borrowers to rehabilitate defaulted loans.
The first piece of legislation will address borrowers facing economic hardships by reducing payments. The bill, S3125, creates two income based repayment options, the Repayment Assistance Program (RAP) and the Household Income Affordable Repayment Plan (HAIRP).
RAP will allow borrowers to make reduced payments equal to 10 percent of the monthly income of all parties on the loan. Monthly payments could be reduced to as little as $5 a month for up to two years, if the borrower’s financial situation warrants it. During this time, HESAA would pay the interest on the loan so all of the payments go directly to the principal. The lower monthly payments will allow families and individuals to gain greater financial stability while remaining current on their loans.
While this will help many New Jerseyans, two years is not necessarily enough time for borrowers to reach financial stability. This is why we also created HAIRP. The program will allow for reduced payments equal to 15 percent of the monthly income of all parties on the loan. The loan repayment term would be extended to 25 years, at the end of which any remaining balance would be forgiven.
The second piece of legislation, S3149, would allow HESAA to declare loans in default while providing an avenue for burrowers to rehabilitate said defaulted loans. Defaulted borrowers could demonstrate their ability and willingness to repay the loans by making nine on-time payments over the course of 10 months. Following the nine payments, the loan would be considered rehabilitated, which would then be reported to the credit bureaus.
Far too many New Jerseyans feel trapped by their student loan debt. Debt can be hard to understand. Interest rates and regulations can be convoluted and confusing. All too often, there is no clear means of escape. This legislation will provide a way out for countless student borrowers in the coming years. I look forward to seeing this legislation signed into law, so it can begin providing relief immediately.
Senator Sandra Cunningham is chairwoman of the Senate Higher Education Committee.
See the article on NJ.com