On Monday, July 7, New Jersey Governor Chris Christie signed a new law that will limit the amount that New Jersey college students can borrow from the Garden State’s student loan program, according to a NJ government press release.
The aim of the new law is to also put a leash on New Jersey’s student loan program, the New Jersey Higher Education Assistance Authority (HESAA), which has been accused of predatory lending practices.
Under the new law, New Jersey college students will now be required to first exhaust all of their federal student loan options before turning to HESAA for a student loan. Further, student loan borrowers will only be able to take out a maximum of $150,000 in education loans.
Previously, student borrowers in the Garden State were allowed to take out up to $200,000 in student loans, an amount that was overwhelming student debtors. The maximum will increase on a yearly basis according to an inflation index that will gauge the price of college.
One of the main intentions of this law is to reign in HESAA without limiting borrowing options for New Jersey college students. Last Fall, the bill was introduced by New Jersey legislators after hearings regarding HESAA led some New Jersey assemblymen to describe the student loan authority’s practices as “predatory” and “loan sharking.”
It was argued that HESAA was misleading student loan borrowers about repayment options that were available to them. Also, HESAA was accused of not allowing refinancing or consolidation, considering loans to be in default despite partial payments being sent to collection (this would lead to additional fees for the borrowers), and refusing to inform relatives about the potential for student loan forgiveness when the borrower passed away.
How will HESAA be reigned in? First, New Jersey’s student loan program will have to verify all financial information reported by a student loan borrower or cosigner on an NJCLASS loan application; some New Jersey senators claimed HESAA was not confirming this information.
Second, HESAA must deduct the maximum amount of federal direct subsidized loans available to a New Jersey student borrower when calculating the maximum student loan amount for a student debtor on a yearly basis. Federal subsidized loans offer better payment terms to borrowers who are struggling financially because the U.S. Department of Education will pay the interest accumulated on those loans.
Third, HESAA must subtract the maximum amount of federal direct unsubsidized loans available when calculating the maximum loan amount if the federal loan interest rate is lower than the state interest rate. This will presumably push borrowers to take the student loan with the lowest interest rate.
Assemblyman David Benson (D-Mercer) released the following statement: “Responsible reform and targeted measures to educate incoming college students on managing loan debt is necessary to helping students make informed choices. It’s time to end this cycle of loading students up with debt that too often takes a lifetime to pay back.”
LendEDU had previously reported on this legislative issue back in early June. At that point, the aforementioned law was split into two bills, A4238 and A4239. On June 8th, the New Jersey Assembly unanimously approved both bills aimed at curbing student debt and making it more affordable, while also checking the autonomy of HESAA.
Senator Bob Gordon (D-Bergen) had the following to say at the time: “These are significant bills to help establish guidelines for families, but also boundaries so that HESAA is not issuing loans that are in excess of what a borrower can manage over the long-term. These borrowers need a reasonable repayment agreement so that they are not destined for bankruptcy or a lifetime of insurmountable debt.”
The HESAA is the largest state-based student loan program in the United States; the total amount of student loans given out by New Jersey currently totals near $1.9 billion. Compared to the rest of the country, New Jersey has the highest number of graduating high school students who leave the state to attend college. The hope is that the creation of this new law will help encourage New Jerseyans to stay in state to attend a higher education institution.
Author: Dave Rathmanner
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