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.


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