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August 19, 2016

New Jersey legislators move to reform aggressive student loan program

New Jersey lawmakers have announced a series of measures addressing student debt issues this week, including one bill aimed at reforming the state's controversial student loan program.

The measure would require the state agency that administers the loan program to offer income-driven repayment for its struggling borrowers, bringing the loans closer in line with the federal government's loan program.

Last month, ProPublica and the New York Times published an investigation into the program, which found that its loans come with onerous terms that can easily lead borrowers to financial ruin.

Repayment of the state's loans cannot be based on income and borrowers who face unemployment or economic hardships are given few reprieves. One mother, who co-signed her son's loans, is still paying off his debt even though he was murdered in January 2015.

The student loan agency that administers the program employs strikingly aggressive collections tactics: If borrowers fall behind on payments, the agency can garnish wages, take tax refunds and suspend professional licenses – all without getting a court judgment.

Under the newly proposed measure, repayment would be limited to 10 percent of a borrower's income after taxes. And payment would drop to nothing if a borrower's earnings approach the poverty line. Any remaining debt would be forgiven after 20 years.

The measure could also indirectly address whether cosigners should be responsible for student loans if borrowers die, said Assemblyman Gary Schaer, whose office has been working on the student debt legislative package for months.

"If in fact a student dies, obviously he or she is not making any income," he said, suggesting payment would not be necessary in those cases. The series of measures, which were proposed by Schaer and New Jersey Assemblywoman Mila Jasey, is expected to be introduced at the next convening of the state assembly in the coming weeks.

Following our reporting, Jasey, who chairs the state assembly's higher education committee, called on legislators to examine the loan program.

"Our state must review the existing system with a more compassionate eye to those situations that have such a destructive impact on people who simply sought to better their lives by earning a college degree," Jasey said in a statement.

The lawmakers' proposal comes just a week after state senators advanced other legislation to assist borrowers and limit the power of New Jersey's student loan agency.

Nearly a dozen people testified against the agency at a state senate hearing last week, many describing how the state's loan program had left them financially ruined. Notably absent from the hearing was the agency's executive director, Gabrielle Charette, who declined to testify.

Instead, she sent a letter explaining that it would be "premature" to discuss the concerns of borrowers and legislators before completing an internal review. Charette said the agency would brief the state senate in the future, but did not specify when.

The agency had previously dismissed the investigation by ProPublica and The Times as "one-sided," and said the agency's aggressive tactics were necessary to satisfy the bondholders who back the loans.

"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," Marcia Karrow, the agency's chief of staff, said in response to our previous questions. (Read the agency's full response.)

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