Student loans are incredibly difficult to discharge, even through bankruptcy, this is widely known. However in New Jersey, it appears as though student loans are still expected to be paid, even if someone gets cancer or even dies.
This is something that Marcia DeOliveira-Longinetti learned when trying to close out a list of things to take care of after her son's unsolved murder last year. When Marcia called about federal loans that her son had taken out for college, an administrator offered condolences and assured her that the balance would be written off. However, the New Jersey Higher Education Student Assistance Authority gave a quite a different response.
"Please accept our condolences on your loss. After careful consideration of the information you provided, the authority has determined that your request does not meet the threshold for loan forgiveness. Monthly bill statements will continue to be sent to you." a letter from the agency read.
Of course Marcia was shocked, and even though she co-signed the loans was left confused. However, as a joint investigation by ProPublica and the New York Times discovered, this was not an isolated case.
According to the NYT, New Jersey's loans, which total $1.9 billion, come with extraordinarily stringent rules that can lead to financial ruin.
As the NYT explains
New Jersey’s loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks.
The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.
“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.”
The authority, which boasts in brochures that its “singular focus has always been to benefit the students we serve,” has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives.
The program’s regulations have destroyed families’ credit and forced them to forfeit their salaries. One college graduate declared bankruptcy at age 26 after struggling to repay his debt. The agency filed four simultaneous lawsuits against a 31-year-old paralegal after she fell behind on her payments.
Chris Gonzalez is another example of how strict the state is. Gonzalez got non-Hodgkin's lymphoma and was eventually laid off by Goldman Sachs (after three years of cancer treatments – nice bunch over there). While the federal government allowed him to suspend his payments because of hardship, New Jersey sued him, seeking $266,000 in payments, and seized a state tax refund he was owed.
One reason that is given for the tactics is that that the state depends on Wall Street investors to finance student loans through tax-exempt bonds, and the state needs to satisfy those investors by keeping the loans to a minimum. Also, loan revenues cover about half the agency's administrative budget. Governor Chris Christie declined to respond to questions, but Christie appointed its executive director Gabrielle Charette, and Christie also has the power to appoint at least 12 of the agency's 18 board members, and can veto any action taken by the board.
Marcia DeOliveira-Longinetti continues to pay on her son's loans, having made 18 payments to New Jersey in the amount of $180 a month, with about 92 payments to go. "We're not going to be poor because of this, but every time I have to pay this thing, I think in my head, this is so unfair." Marcia said.
As the NYT explains, for decades states served as middlemen for federal student loans, but in 2010 Congress and the Obama administration effectively eliminated the role of state agencies by having only the federal government lend directly to students. Some states decided to downsize and transfer their federal loan portfolios, but New Jersey went a different direction.
For decades, states served as middlemen for federal student loans. Most of the loans were made by banks and were handled and backed by regional and state-based agencies as well as by the federal government. The arrangement was unwieldy, expensive and marked by scandal.
After Pennsylvania’s student loan agency lost a public records lawsuit in 2007, documents revealed that the agency had spent nearly $1 million on things like fly-fishing, facials and falconry lessons.
That same year, New Jersey’s agency was caught in what amounted to a kickback scheme. The state attorney general found that the agency had improperly pushed one company’s loans in exchange for annual payments of $2.2 million. A subsequent investigation by the state’s inspector general found that the agency was in “disarray.”
In 2010, Congress and the Obama administration decided to effectively eliminate the role of state agencies by having only the federal government lend directly to students.
Some states, like California, decided to downsize and transferred their federal loan portfolios. Others, such as Pennsylvania, won contracts from the federal government to service debt from the federal loan program.
New Jersey chose a different path. In the years leading up to the end of the federal program, New Jersey sharply expanded its loan program, slowly replacing the federal loans it once handled with state loans. From 2005 to 2010, loans from the agency nearly tripled, to $343 million per year. Since then, the agency has reduced its loans by half, but its outstanding portfolio has remained roughly the same, about $2 billion.
Ms. Karrow said the growth of New Jersey’s program was simply a result of both the increasing number of students and the rising cost of tuition. But in fact, college enrollment and tuition have not grown as rapidly as the program’s size.
In contrast to New Jersey, Massachusetts, which is the next largest program with $1.3 billion in outstanding loans, automatically cancels debt if a borrower dies or becomes disabled, something many other states do also according to the NYT.
New Jersey's solution to the problem is to encourage students to buy life insurance in case they die to help co-signers repay. How very nice of them.
When consumer lawyers protested the program's onerous conditions at a 2014 agency meeting, the agency said that giving borrowers a break would make the bonds sold to finance loans "less attractive to the ratings agencies and investors." Which according to Moody's is an accurate assessment, as Moody's cited the authority's "administrative wage garnishing, which it uses aggressively for significantly higher collections" compared with other programs.
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"I felt so comfortable because it was the State of New Jersey. It's the state, my government, trying to help me out and achieve my American dream. It turns out they were the worst ones" Gonzalez said. Indeed, when Wall Street is a key source of funding and the bond issuer dares not push back, apparently death nor cancer can't get you out of your student loan payment.
Read the full article here.
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