New Jersey student loan borrowers who find themselves in financial difficulty could find relief under a pair of new laws signed by Democratic Gov. Phil Murphy.
Murphy signed the legislation Thursday and credited the bills with giving borrowers, who have outstanding principal of nearly $2 billion, the ability to stay in the state.
The bills passed the Democrat-led Legislature with near unanimous support and stem from a 2016 New York Times report that detailed how New Jersey's loan programs denied loan forgiveness to co-signers even after borrowers died.
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The impact the new bills will have isn't entirely clear.
But an annual report from the state's Higher Education Student Assistance Authority, which manages the New Jersey's college loan program, indicates that about 5,000 out of roughly 120,000 loans are delinquent. That gives a window on how many people are in financial straits, according to the authority's executive director David Socolow.
A closer look at the bills:
WHAT DO THE BILLS DO?
One measure gives borrowers facing tough financial circumstances a chance to pay reduced monthly payments on their loans.
The law applies to NJCLASS loans, which are the state's primary loan, accounting for most of the authority's outstanding loans. It doesn't apply to private loans or federal counterparts.
Under the law a borrower whose monthly loan repayment is greater than 10 percent of the aggregate household income over 150 percent of the federal poverty level could qualify.
It would work like this: To determine eligibility, the borrower would calculate his or her monthly household income, including those of any potential co-signers. Typically, in New Jersey this would entail the borrower and one parent as co-signer, according to the authority.
Then, the borrower would consult guidelines showing 150 percent of the federal poverty level.
For a family of two in New Jersey in 2018, that was $24,690 or $2,058 a month. A hypothetical borrower, then, with the state's median household income of roughly $76,000 a year, or $6,333 a month, has a monthly income of $4,275 over the federal poverty limit for a family of four. Ten percent of that would be $428. If loan payments are above that rate, then the borrower would qualify for the reduced rate for two years.
If the borrower needs further help beyond the two year window, then the law permits borrowers to pay 15 percent of their aggregate household income above 150 percent of the federal poverty limit.
The second bill allows the authority to help students who defaulted on their student loans to rehabilitate them by offering a payment repayment schedule. The law says that if nine on-time payments are made over 10 consecutive months, the loan would be considered rehabilitated. That matters, the bill's sponsors say, because defaulted loans wreck borrowers' credit ratings.
ARE TAXPAYERS PAYING FOR THIS?
The short answer is no. That's because New Jersey's student loans are financed by bonds that are backed by the borrowers' ability to repay them, according to Socolow, and not by taxpayers or by revenues from the state budget.
WHY IS THIS HAPPENING NOW?
The legislation stemmed from legislative hearings that happened after a New York Times article in 2016 detailing how the state authority declined to forgive loans for the co-signers of borrowers who had died. The article led to quick action by lawmakers, and former Republican Gov. Chris Christie signed a law allowing loan forgiveness in cases involving borrowers who have died.
These news laws stemmed from the debate surrounding that coverage.