Sunday, July 3, 2016

New Jersey student loans: loan shark edition

Student loans have created an increasing burden on the lives of the young, and not-so-young. New Jersey's student loan program seems to be the worst of the worst---a program that Chris Christie runs, through his appointments to the agency board and his veto power over its actions. No doubt Tony Soprano and friends helped in its design.

This New York Times story opens with a bereaved mother whose college student son had just been murdered.
“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.
“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.”
And that collection agencies make a bundle. As does Wall Streeter and the state loan agency itself.
Another borrower, Chris Gonzalez, could not keep up with his loans after he got non-Hodgkin’s lymphoma and was laid off by Goldman Sachs. 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 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.
Loan revenues also cover about half of the agency’s administrative budget.
In 2010, the agency filed fewer than 100 suits against borrowers and their families. Last year, it filed over 1,600. (Some could result from federal loans handled by New Jersey, though such loans make up just 4 percent of the agency’s portfolio.)
The cases are handled by debt collectors, who can tack on another 30 percent in fees on top of the outstanding debt.
Who is in charge? Well, Donald Trump's new bff, Chris Christie.
A spokesman for Gov. Chris Christie said the governor did not control the authority and declined to respond to questions about the loan program. But Mr. Christie, a Republican, appointed its executive director, Gabrielle Charette; he 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.
Consider the loan agency's track record:
A New Jersey rule adopted in 1998 allows the authority to give borrowers in default a second chance by allowing them to become current on their account through on-time payments. But the agency has never granted a reprieve and instead cuts off contact with borrowers, leaving them at the mercy of collection firms.
Ms. Karrow said federal regulations prohibited the agency from offering such relief, but student loan experts disputed that assertion.
“There is nothing in the federal law or regulations that prohibits them from offering private loan rehabilitation, ” Mark Kantrowitz, a financial-aid expert, said.
As a co-signer, Tracey Timony struggled to help pay off her daughter’s $140,000 in loans. Though the Higher Education Student Assistance Authority can seize wages or tax returns without court approval, it must secure a judgment to dip into borrowers’ bank accounts or place liens on their property. Instead of garnishing Ms. Timony’s wages, New Jersey sued her after her daughter defaulted.
“The agency is looking to put as much pressure on the borrower and be as aggressive as possible, and the way that you do that is you go after everybody that is liable,” Jennifer Weil, a New Jersey student debt lawyer, said. “In case the garnishment doesn’t work, a judgment will help put pressure on the parents.”
Ms. Timony declared bankruptcy and got monthly debt payments that will rise no higher than about $1,000 a month, far less than what the agency had demanded.
“I never thought that sending my daughter to college would ruin our lives,” Ms. Timony said. (my bolding)
It wasn't sending your daughter to college that has wrecked havoc on your life. It was borrowing money from New Jersey. Consider what happened to Chris Gonzalez, the lymphoma patient:
On May 8, 2015, after months of hearing nothing, he received an email from New Jersey: His deferral request had been denied and his loan was being sent to a collection agency.
“Unfortunately, because of how the loan originated, the authority is not in a position to offer forbearance or relief,” Robert Laird, a program officer at the loan agency, said in the email.
Terrified by what a default would mean for his credit rating, Mr. Gonzalez told the agency that he would stop paying for health insurance and use the money — $200 per month — to repay the loans.
The agency rejected the offer. “In the event that your doctor declares you total and permanently disabled, please keep me posted,” Mr. Laird told Mr. Gonzalez in an email.
One day in April, a stranger rang Mr. Gonzalez’s doorbell.
“Chris Gonzalez?” he asked. Mr. Gonzalez nodded. “You’ve been served with a lawsuit from the New Jersey Higher Education Student Assistance Authority.”
The suit demanded over $260,000 — about $188,000 for the original loans, $34,000 in interest, and $44,000 to cover the fees of a collection agency’s lawyer.
Even if his business improves, Mr. Gonzalez has no idea how he will afford his ballooning payments.
“I don’t have money,” he said. “I am spending it all on my debt.”
Gonzalez might find it easier to live with his cancer than with the New Jersey Higher Education Student Assistance Authority.

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