Department of Education rules that took effect last summer make it easier for educators, and anyone else who defaulted on a federally guaranteed student loan, to restore that loan to good standing through the loan rehabilitation process. The new rules allow borrowers to qualify for loan rehabilitation by making nine voluntary on-time and full monthly payments over 10 consecutive months. The extra month allows formerly defaulted borrowers to be late on one payment without derailing their payment plan.
Loan rehabilitation isn’t new. But the old rules worked against borrowers by allowing loan servicers and debt collectors to order them to make payments they couldn’t afford.
Now the rehab formula is based on the one used for the federal Income-Based Repayment program, or IBR. A loan rehabilitation payment is equal to 15 percent of adjusted gross income that exceeds 150 percent of the federal poverty guideline for your state and family size.
Also, in June, President Barack Obama directed the Department of Education to develop new rules allowing all federal student loan borrowers to cap their monthly payment amounts at 10 percent of the borrower’s monthly income. The administration estimates the change will lower the monthly loan payments for teachers and other workers who have steady incomes, but still stretch to make loan payments.
These changes will bring about a level of student debt relief and are a good first step. But what about the many teachers and education support professionals so entrenched in debt that they consider filing for bankruptcy? Fact is, the student loan portion of their debt is almost impossible to eliminate. You have to prove “undue hardship”—a high hurdle to jump. Federal student loans have been ineligible for discharge for two decades and, except in rare cases, it’s been illegal since 2005 to discharge private student loans during bankruptcy. (Supporters of the loophole argue that it does away with the risk of people getting an education and immediately running to bankruptcy court to shed their loan obligations before they make big money.)
This must change. Singling out student loans—when most other types of consumer debt, including money owed on mortgages, credit cards, and auto loans can be discharged in bankruptcy— doesn’t make sense.
To be sure, the administration’s recent efforts provide student debt relief options. But we still need additional, substantive changes to make college more affordable for all Americans who seek a higher education, and to ease the burden of repayment. That includes additional funds for Pell Grants, and expanded loan repayment and forgiveness programs for public-service employees.
That’s where NEA’s Degrees Not Debt campaign comes in. Tens of thousands of students, parents, and educators agree and have voiced their support by signing NEA’s Degrees Not Debt pledge and you can, too. Find out how you can be part of the solution.