Last week, Hon. John Sherwood ruled a partial discharge for debtor Sarah Hunter against NJ HESSA (New Jersey Higher Education Student Assistance Authority). NJ HESSA says they are a “state agency” on their website but they are not run by the state of New Jersey. The loan company is privately owned, receiving their $1.9 billion for student loans from private investors, and therefore does not provide the same loan protection as federal agencies. NJ HESSA faced numerous criticisms in 2016 about their harsh collection practices and bribery of teachers and councellors reviews to increase the popularity of their website.
The groundbreaking quality of Sarah Hunter’s case decision is that borrowers from NJ HESSA are denied the ability to adjust payments or even have the debt forgiven in the event that the borrower dies. NJ HESSA then transfers the debt to the co-signer which is most frequently the parent of the deceased student. The New York Times article “In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve” in July 2016 reported on Marcia DeOliveira-Longinetti and her son who was killed and yet his loans were forced upon her. Her son’s federal loans were “written off”; however NJ HESSA informed DeOliveira-Longinetti that her request “does not meet the threshold for loan forgiveness”.
NJ State Law works differently than other states when dealing with private student loan companies. “New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.” Since NJ HESSA depends on Wall Street investors, they use harsh pressure tactics and can resort to suing the debtor if they become unable to repay the high interest rates, even in the case of injury or loss of employment.
Hon. John Sherwood’s decision to give Hunter a partial discharge is founded on the case that her debtor puts an “undue hardship” on Hunter to repay the loans. The rule of “undue hardship” is covered by Section 523(a)(8) of the Bankruptcy Code used most often in the case of federal loans. Borrowers must pass the Brunner Test to prove undue hardship which Hunter was able to do. By applying the bankruptcy code to state loans, Judge Sherwood has enabled borrowers trapped in loans by a state agency like NJ HESSA a chance to readjust their loans so their lives are not completely destroyed by debt. Even if the discharge is partial, it is still progress in creating laws in New Jersey that protect the borrower instead of allowing Wall Street funded private agencies to hide behind the state.