Category: Federal Loans

Some Assistance with NJCLASS Loans with RAP and HARP

In early 2018, about a half dozen bills were introduced to deal with student loan issues.   Unfortunately,  those bills languished in committee.

In October, 2018 S3125 and S3149 were introduced dealing specifically with NJCLASS loans.  Two months ago, the bills passed both houses of the Legislature and were signed into law. This blog will deal with S3125.  The next, S3149.

S3125  has two parts.  The Repayment Assistance Program (RAP) deals with NJCLASS loans issued in the 2017-18 academic year and thereafter.   If you are facing an economic hardship, you can apply for RAP .  An economic hardship means that the amount that you currently pay on your NJCLASS loan is more than 10% of the total aggregate household income of all the parties to the loan (borrower and co-signer) minus 150% of the federal poverty guidelines for your household size (which becomes your new payment).  The minimum monthly payment is  $5.

You stay in the program for 2 years.  HESAA pays the interest on the bonds.  Your payment is applied to principal which means that after the two years,  your loan  balance will  be lower.  Before your break out the champagne, however, if you are unemployed or significantly underemployed, your monthly payments could be as little as $5 per month.  That means that your loan balance goes down a whopping $120.  But it keeps you out a default, litigation and possible garnishment of your wages.

After RAP,  the student is supposed to make regular monthly payments based on the loan documents.  However, if  the student and co-signer continues to face an economic hardship, the borrowers can qualify for the Household Affordable Repayment Plan (HARP) beginning with loans issued in the 2018-19 academic year and thereafter.  Under HARP, economic hardship means the regular monthly payment exceeds 15% of the total aggregate household income of all parties to the loan minus 150% of the federal poverty guidelines for your household size.  That becomes your new payment subject to a $25 per month minimum.

If you are in HARP, you can expect that your loan balance will probably increase each year because your monthly payment will probably not cover the interest portion of your payment.  Each year, you will have to submit your income information to HESAA to prove that you qualify.  The repayment term is extended to 25 years.  If you stay in the HARP program for 25 years, the balance of your loan  (which is significantly higher)  is forgiven.  Although the law does not say so, I am pretty sure that the forgiven balance will be reported to the IRS, and you may be required to pay taxes on that amount.

If after a given year your income increases so that you do not qualify for HARP, any unpaid interest is capitalized back into your loan, and you must pay that amount over the original loan repayment plan at your contract rate of interest.

RAP and HARP are not open ended.  Only a certain amount of loans can qualify.  That amount is set forth in the bond documents but not in the law.   So, do 10% qualify?  30%?  50%?  Dunno.   It is first come, first served.

Far from a perfect solution to overburdened NJCLASS borrowers and co-signers,  but a start.


The Costs and Benefits of College

Back in 2014, a study by PayScale indicated that certain degrees, such a engineering, pretty much insure that the graduate will earn at least 500K more over a 20 year period than someone who did not attend college.  At the same time, an arts or humanities degree from a lower tiered college may translate into a six figure deficit vis-a-vis high school graduates.

Moreover, a study by McKinsey, highlighted in The Economist, pointed out that in this less
than stellar pre 2016 job market, 42% of then recent graduates were in jobs that did not require a 4 year degree.
When I attended a liberal arts college, tuition, room and board amounted to less than $3500 per year.  My father’s union paid for half.  My goal was to be a well rounded student who could think and communicate.  After college, I would figure out what I wanted to do.
I had that luxury not because my parents were wealthy but because college and grad school were relatively cheap.  Students today do not have that luxury.  The College Board published data that indicates for 2016-17, the average tuition, room and board at a private college was in excess of $45,000 per year.  For in-state at public colleges, $21,000.
So, if you follow the advice of PayScale, you become an engineer or perhaps a computer major.  But not everyone has the aptitude or inclination to be an engineer or IT wiz.
What to do?  Be smart and realistic.   If you are able to get into an Ivy League school, or another top tier school like Stanford or MIT, it may be wise to go “all in”.  But not to be a Latin major.    If you are a B student with median SAT’s, you have to ask,  is it worth spending 50K per year to go to a second tier private college?  Think about it.  Maybe a state university as an “in state” student is money better spent.
Or, look into a community college for the first two years.  You can test your abilities and see what you like at a very reasonable price.  If you do well, you can transfer into a 4 year college.  By going this route, you still get your degree but you may wind up saving 40% of the expense.
In addition, go beyond applying for financial aid from your school.  There are many  financial aid opportunities through local clubs or civic organizations.  You can find them if you are willing to do your homework.   For example, our local Rotary awards scholarships to about 12 students per year.
Finally, you have to be on top of your student loans once you graduate.  The last thing you want to do is fall into default.  More than that, you would want to be pro-active in finding the right repayment plan which will allow you to pay your student loans and not live in poverty.  Do not shy away from seeking expert help in this area.  It may be money well spent.

Prosper Act

The House Republicans recently introduced the Prosper Act which, in part, modifies existed law dealing with the availability and repayment of student loans.  Presently, undergraduates are eligible for Perkins loans which are subsidized and Direct Stafford loans which are subsidized and unsubsidized.  Subsidized means that the government pays the interest on the loan while the student is in school and for a grace period after the student leaves school.  Unsubsidized means that interest accrues from the time that the loan is drawn down but payments are deferred.  When you consider that the current rate of interest on undergrad Stafford loans is 4.29% and the average undergrad is in school for a little over 4 years, eliminating unsubsidized loans translate into a higher monthly payment for students.

The Prosper Act replaces the undergraduate Perkins and Direct loans with what is called a Federal One loan.  It also eliminates the 1%+ origination fee for undergraduate loans and the 4.27% origination fee for Parent Plus and Graduate Plus loans.  That is a savings.  It also increases the aggregate amount that an undergraduate can borrow under the Stafford program from $31,000 to $39,000 for dependent undergrads and from $57,500 to $60,250 for independent undergrads.  These amounts are caps.  Under the proposed bill, the school does not have to offer the cap amount to all students.  For example, it may offer the cap amount to engineering or IT students who have better prospects for a higher paying job upon graduation.  And, by the same token, it may offer less to, say, a history or anthropology major.

Currently, Parent Plus and Graduate Plus loans have no cap.  The parent or student can borrow the cost of attendance less any other aid offered to the student.  The proposed bill limits parents to $56,250.  I deal with many parents who have in excess of $100,000 of Parent Plus loans.  How are they going to make up the difference?  Each case is different, but I would suspect that parents will be forced to take on private loans which traditionally have not been as flexible as federal loans in regard to repayment options.

There are other parts to the proposed legislation which we will address in future blogs.



Federal Student Loan Advice For New Grads

Kelsey Gee wrote an article which appeared in the May 13-14 edition of the Wall Street Journal entitled “Outlook is Rosier for Class of ’17”.  Good news for a change.  According to the executive search firm, Korn/Ferry International, salaries, adjusted for inflation, are expected to be up 14% from 2007 for undergrads.  The overall average is expected to be a tad under $50,000; however, the average for software development is $65,232; engineers, $63,036; actuaries, $59,212; and scientists and researchers, $58,773.  A survey conducted at Adelphi University indicates that 2/3 of those responding had at least one job offer.  But, the executive director of career services at Adelphi warned that only about 30% of the class responded to the survey.  He also warned that the average student could expect a 6 month search before landing a job.

A good many of these graduates have federal student loans.  If so, then the student has a six month grace period before payments begin for Stafford loans, and a 9 month grace period for Perkins loans.  There is no grace period for Parent Plus loans.

If you have a subsidized Stafford loan, the government is paying the interest until the end of the grace period.  However, if you have an unsubsidized Stafford loan, you are being charged interest from the time you draw down the money.  The unpaid interest in capitalized onto the principal, so you are paying interest on interest.  Not a good situation (especially if you are a graduate student and are accumulating loans over 5-7 years).  My advice to the undergrad is to contact your servicer upon graduation (or the start of your job) and make arrangements to pay down the interest that is accruing.  It will save you a few bucks.

Also, if you are working in the public sector or a non-profit, look into the Public Service Loan Forgiveness (PSLF) program.  If you are qualified and make 120 payments, you can be eligible to have the remainder of your student loan debt forgiven tax free.  Be careful, though, because you have to have the right type of employer and the right type of payoff plan for this program to kick in.  If you need help in this area, contact a qualified student loan lawyer

And for those students who do not find a job, my advice is, DO NOT let the servicer talk you into applying for a forbearance.  There are better ways to deal with this situation.