CUNNINGHAM BILL TO ALLOW LOAN MODIFICATION & CONSOLIDATION FOR STUDENT NJCLASS LOANS ADVANCES

TRENTON – A bill sponsored by Senator Sandra B. Cunningham that would direct the Higher Education Student Assistance Authority to establish a Loan Modification and Consolidation Program for eligible student borrowers of the NJCLASS Loan Program who are, or have previously been, in default, was approved today by the Senate Higher Education Committee.

Under the program, the authority will consolidate a borrower’s defaulted NJCLASS loans into one loan with a fixed interest rate. The Loan Modification and Consolidation Program will be made available to all borrowers currently in default on two or more NJCLASS loans, which includes loans in which the authority or a collection attorney obtained a judgment lien against the borrower. The authority is required to notify all eligible borrowers of the program and to make a consolidation loan application readily available and accessible to defaulted borrowers.

“The weight of student loans is an oppressive burden when you are starting out in a career and trying to make it on your own,” said Senator Cunningham (D-Hudson). “The goal of this legislation is to make loan repayment manageable so that the loan is repaid in a manner that allows the borrower to maintain a reasonable monthly budget, pay for all living expenses and still contribute to the local economy.”

Under the bill, S-2056, an eligible student borrower includes:

1. any borrower who defaulted on an NJCLASS loan within the last 10 years and, who has been employed full-time for at least three consecutive years, earning a minimum annual salary of $40,000. The authority would consolidate all defaulted NJCLASS loans into a single consolidated loan with a fixed monthly payment. The authority would not require a co-borrower or co-signer on the consolidation loan and the loan would be in the student borrower’s name only. The authority would be directed to set the fixed interest rate in accordance with the lowest NJCLASS loan interest rate in effect at the time the original loan was disbursed; and

1. any borrower employed less than three consecutive years, either full-time or part-time, or any borrower earning an annual salary of less than $40,000. The authority would determine a fixed interest rate based upon the weighted average of all eligible defaulted NJCLASS loans in effect at the time the original loans were first disbursed, plus 0.25%. The interest rate would be a fixed rate for the life of the loan. The authority may require a co-borrower or co-signer on the consolidation loan; except that under no circumstances would the authority condition the requirement for a co-borrower or co-signer solely on any adverse reporting of the borrower’s NJCLASS loans prior to default.

The bill would provide that upon the authority’s receipt of the borrower’s loan application, the authority would have 30 days to provide the borrower with a summary sheet that lists all loans included in the consolidation loan.  The authority would be directed to vacate any collection fee or late fees added to the loan balance.  In the event that the authority obtained a judgment lien, the authority would be required to calculate interest pursuant to the court rule for post-judgment interest.  A borrower would have 20 days to accept or reject the terms contained in the summary sheet by executing a copy of the summary sheet and returning it to the authority along with the first monthly payment.  The bill would prohibit the authority from charging any origination fees for the consolidation loan under the program.

Under the bill, the authority would have 45 days from the date of receipt of the borrower’s written acceptance of the summary sheet to finalize loan consolidation.  The borrower would be required to execute a new promissory note and the authority would be required to report to the credit agencies future loan consolidation payments on a new tradeline. The authority would be obligated to take all necessary steps with the credit reporting agencies to add a notation in the special comment code section of the tradeline where the default was first reported that an original loan is no longer in default and is being paid as agreed.  In the event a defaulted loan included a co-borrower or co-signer, the authority would also be required to take all necessary steps to update the co-borrower’s or co-signer’s credit report.  The authority must establish a new tradeline in the co-borrower’s or co-signer’s credit report for the consolidated loan.

A defaulted loan may be subject to loan modification and consolidation under the program only once. Under this legislation, if a defaulted loan was being paid through a collection attorney, the authority would be required to immediately notify the collection attorney of the loan modification and consolidation and all payments to the collection attorney would cease.  The authority would have 30 days from the receipt of the borrower’s signed summary sheet and first payment to vacate the judgment lien and must provide the borrower with proof the lien was vacated within 15 days thereafter.  The bill directs the authority to cease any wage garnishment immediately upon the receipt of the borrower’s signed summary sheet and first payment.

With today’s 5-0 vote, the bill advances to the Senate Budget and Appropriations Committee for further consideration.