Annie Waldman, In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve. The New York Times, 3 July 2016. This story was co-published with ProPublica. “After her son was killed, Marcia DeOliveira-Longinetti was able to get the remaining balance of his federal student loans written off. But the New Jersey state agency that had also lent her son money told her, ‘Your request does not meet the threshold for loan forgiveness.'”
Update: Annie Waldman, New Jersey Will No Longer Collect Loans From Families of Dead Students. ProPublica, 6 December 2016. “New Jersey Gov. Chris Christie on Monday signed into law a bill requiring the state’s student loan agency to forgive the loans of borrowers who die or become permanently disabled. Last July, an investigation from ProPublica and The New York Times found that New Jersey’s student loan agency aggressively sought repayment of loans with already onerous terms, even after some of the recipients had died. The efforts had traumatized grieving families, and forced some into financial ruin…. ‘A parent’s worst nightmare is losing a child, and if that unfortunate event should occur, the last thing a parent should have to face is someone calling to collect money for student loans,’ said State Sen. James Beach in an emailed release. This law will put an end to that practice and help establish new policies to put in place.'”
When Ms. DeOliveira-Longinetti called about [her son’s] federal loans, an administrator offered condolences and assured her the balance would be written off.
But she got a far different response from a New Jersey state agency that had also lent her son money.
“Please accept our condolences on your loss,” a letter from that agency, the Higher Education Student Assistance Authority, said. “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.”
Ms. DeOliveira-Longinetti, who co-signed on the loans, was shocked and confused. But her experience with the authority, which runs by far the largest state-based student loan program in the country, is hardly an isolated one, an investigation by ProPublica, in collaboration with The New York Times, found.
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….
One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans through tax-exempt bonds and needs to satisfy those investors by keeping losses to a minimum….
The cases are handled by debt collectors, who can tack on another 30 percent in fees on top of the outstanding debt….
Besides administering the loan program, the authority provides financial aid counseling, conducting hundreds of financial aid nights at New Jersey high schools, where it offers advice about paying for college, including pitching its own loans….
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….
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….
Massachusetts, running 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 also do. The program of the third-largest state lender, Texas, is half the size of New Jersey’s. And Texas offers a flat interest rate, a modest 4.5 percent, while New Jersey’s rates can reach nearly 8 percent. Some other state loan programs have more flexible repayment options — Rhode Island, for example, offers income-based repayment.
New Jersey, meanwhile, encourages students to buy life insurance in case they die to help co-signers repay. As an agency pamphlet cautions, “Are you prepared for the unthinkable?”…
When consumer lawyers protested the program’s onerous conditions at a 2014 agency meeting, the agency, according to minutes from the session, said that giving borrowers a break would make the bonds sold to finance loans “less attractive to the ratings agencies and investors.”…
Given the lack of options, some New Jersey borrowers have resorted to declaring bankruptcy, even though, as is true of all student loans, their debt is rarely canceled. Declaring bankruptcy also makes it virtually impossible to secure a mortgage, lease a car or even use credit cards for years. But for New Jersey borrowers, such an extreme step at least offers a way to gain manageable monthly payment terms.