New Jersey’s loan programs are coming under legal scrutiny. The New Jersey State Senate has announced plans to examine agencies that currently offer student loans within the state. This has come to light after the alarming methods used by the state loan programs became public knowledge.

Numerous controversies currently exist regarding the loan programs. Instead of operating within the laws of the state, these loan agencies are authorized by the state, meaning they have unhindered power regarding collections. Students and graduates who borrow from any New Jersey sponsored private lender can have their wages garnished and state tax returns blocked, regardless of their financial situation. Additionally, the state offered loans, on average, have higher interest rates relative to loans offered by the rest of the United States.

In light of this, a hearing will be conducted on August 8th. Robert Gordon, senator and chairman of the Legislative Oversight Committee will work with state senator Sandra Cunningham, chairwoman of the Higher Education Committee at the hearing.

The primary goal is to examine the collection policies and create better terms for graduates dealing with financial hardships. For example, following the hearing, a bill will be proposed to offer forgiveness to families that have had a death in the family. Robert Gordon also wants to curtail the aggressive collection policies of the state sponsored loan companies, asserting that young families and students need support rather than opposition.

Currently, New Jersey loan programs are strict on their repayment terms and do not offer flexible plans for those facing difficulties. Interest rates cannot be adjusted and there are no income-driven repayment options. Regardless of how problematic an individual’s case is, the agencies still aim to collect. For instance, a mother of her deceased son is still paying off his debt as the co-signer. Another graduate diagnosed with cancer was unable to pay for both medical expenses and loan amount, and was sued for $250,000.

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Because these loan firms are backed by the state, they do not need approval to carry out aggressive collection tactics. They are also far more likely to file law suits once someone has defaulted on their loan, having filed approximately 1600 of them in 2015.

Loans are funded by tax-exempt bonds. HESAA, the Higher Education Student Assistance Authority, works toward minimizing financial losses and keep bonds funded, regardless of the means used to do so.

HESAA reports it is committed to helping those in financial difficulty. However, as previously noted in another article, borrowers are only helped by HESAA programs if they know how to ask and what to ask for.

HESAA will take part in the August 8th hearings, but has not made comments regarding it. Students and graduates who have borrowed from state loan programs are also expected to testify at the hearing.

It’s hoped that substantial changes will occur as the year progresses. Federal loan programs are typically generous and flexible for those who face unexpected financial problems. However, once private lenders are backed by state authority – as is the case with New Jersey – borrowers face even harsher collection practices than they would with a private lender.