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New Jersey Will No Longer Collect Loans From Families of Dead Students

Gov. Chris Christie signed a reform bill ending the most onerous practice of the New Jersey loan program.

New Jersey Gov. Chris Christie on Monday signed into law a bill requiring the state’s student loan agency to forgive the loans of borrowers who die or become permanently disabled.

Last July, an investigation from ProPublica and The New York Times found that New Jersey’s student loan agency aggressively sought repayment of loans with already onerous terms, even after some of the recipients had died. The efforts had traumatized grieving families, and forced some into financial ruin.

The state loan agency, known formally as the Higher Education Student Assistance Authority, is responsible for roughly $1.9 billion in outstanding loans. Christie, who appointed the agency’s top official and has the power to veto any action taken by the agency’s board, would not respond when presented with ProPublica’s findings last summer.

The investigation by ProPublica and the Times, however, did prompt a legislative hearing, and Monday’s action by Christie is the culmination of efforts by state lawmakers to reform the loan agency’s operations.

“A parent’s worst nightmare is losing a child, and if that unfortunate event should occur, the last thing a parent should have to face is someone calling to collect money for student loans,” said State Sen. James Beach in an emailed release. “This law will put an end to that practice and help establish new policies to put in place.”

The new law brings the state’s program closer in line with federal student loans, which are forgiven when students die or become permanently disabled.

A projection from New Jersey’s nonpartisan Office of Legislative Services estimated that under the new loan forgiveness law, about 70 loans a year would be discharged as a result of death or disability and would cost the state about $1.5 million annually.

“To expect a student’s family or other survivors to pay their college loan debt in the event of their death is cruel and unacceptable,” said New Jersey Assemblyman Andrew Zwicker in an emailed release following the signing of the bill.

The agency said in a statement that it was informing borrowers of the legislative changes and that it “remains committed to providing students and families with financial and informational resources.”

The state’s student loan program had already been seen as unusually punitive. The loans have higher interest rates than similar federal loans, and the agency does not allow students to repay their debt based on their income. If a borrower falls behind on repayment, the agency can garnish wages, seize income tax refunds and suspend professional licenses — all without getting a court judgment. It even encouraged students to buy life insurance, given that the loans would not be forgiven in the event of death.

In recent years, the agency has become more aggressive in pursuing delinquent student loans in the courts. In 2010, the agency filed fewer than 100 suits against borrowers. Last year, the agency filed more than 1,600 suits.

After Marcia DeOlivera-Longinetti’s son was murdered last year, she asked the state agency to forgive his student debt, which totaled about $16,000. But because she had co-signed her son’s loans, the agency refused forgiveness, requiring her to pay off his remaining debt.

Last August, the New Jersey Senate held a hearing in which numerous borrowers and their family members shared harrowing personal experiences with the state agency. Executives from the agency were invited to the hearing, but declined to testify.

The agency had previously described the reporting by ProPublica as “biased” and defended their practices as necessary in order to satisfy the bondholders that back the student loans.

Other bills to rein in the power of the state agency are currently pending, including legislation that would require the agency to obtain a court order before garnishing wages or state tax refunds. Another would create a student loan repayment program based on a borrower’s income.

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