August 03, 2016
The New Jersey State Senate has announced it will hold a hearing to examine the state's student loan agency, which administers the largest state-based loan program in the country and one that employs aggressive and unforgiving collection practices.
A ProPublica and New York Times investigation has shown that New Jersey's loan program charges higher interest rates than similar federal programs, and that its officials, armed with the power of the state, have garnished wages, rescinded tax refunds, and even sought repayment from families whose children have died. The state's student loans now total $1.9 billion.
The hearing, set for Monday, Aug. 8, will be led by New Jersey state Sen. Robert Gordon, chairman of the Legislative Oversight Committee, and New Jersey state Sen. Sandra Cunningham, chairwoman of the Higher Education Committee.
"We need to be sure we are properly advising prospective borrowers and not aggressively targeting students and families that are having financial difficulties," Gordon said in an emailed release. "The state should be supporting students and young workers in particular, not putting up additional barriers to their future success."
Following the hearing, the Senate Higher Education Committee is expected to consider a bill that would direct the state loan agency to forgive student loans following the death of a borrower.
As ProPublica has detailed, repayments on New Jersey's loans cannot be adjusted based on income, and borrowers are given few breaks, even when facing the loss of jobs, disability or death. One mother who cosigned on her son's loans is continuing to pay off his debt, even after he was murdered. A college graduate, who defaulted on his loans after he was diagnosed with cancer and lost his job, was sued by the state agency for more than $250,000.
The agency's collection powers exceed those of the most predatory for-profit lenders, and even the agency's most aggressive collection tactics do not require court approval. After default, the agency cuts off contact with borrowers, sending their accounts to collection firms that can tack on an extra 30 percent in attorney fees. Over the past five years, the agency has demonstrated a greater willingness to pursue borrowers through court action. In 2010, the agency filed fewer than 100 lawsuits against borrowers and their cosigners; last year, it filed more than 1,600.
New Jersey funds its loan program through tax-exempt bonds that require the agency, the Higher Education Student Assistance Authority, or HESAA, to keep losses to a minimum.
"Were HESAA not to utilize the tools provided by the legislature we would not be fulfilling our statutory requirements or our fiduciary duties to our bondholders," said the agency's Chief of Staff Marcia Karrow. (Read the agency's responses to our previous questions). The agency did not respond to request for comment on the upcoming hearing.
The agency says it has programs to help struggling borrowers. But as ProPublica reported last week, staffers at the agency have been instructed to only tell borrowers about the programs if they know to ask about them.
Borrowers and an executive from the state student loan agency are expected to testify at the hearing, which is scheduled for 1 p.m. in Committee Room 4 of the New Jersey State House in Trenton.
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