Create an income driven repayment plan for private student loans held by New York state banking institutions

Modeled after President Obama's Income Driven Repayment Plans for Federal Student Loans. Sets a monthly student loan payment at an amount that is intended to be affordable based on income and family size. Monthly payments are based on income and family size which may result in no monthly payment.

Summary of specific provisions

This legislation amends the Education Law, in relation to creating an income driven repayment plan for private student loans held by New York State banking institutions.

This bill amends the Education Law by adding an income based repayment plan. An eligible student loan is any outstanding loan made by a private lender through a New York banking institution to a student who is a resident of New York State and has attended an institution in New York State or is a parent of such a student. It sets a monthly payment at an amount that is income related based on the household income and family size. The required payment under this plan must be lesser than what it would otherwise be paid under the Standard Repayment Plan with a ten year repayment period. Partial financial hardship shall mean circumstances in which at the time the borrower files an individual state tax return, the annual amount due on all the borrower's eligible loans or at the time the borrower elects the income based repayment plan, exceeds fifteen percent of the difference between the borrower's AGI and one hundred fifty percent of the poverty guidelines for the borrower's family size. The commissioner will make the determination as to whether a borrower qualifies for partial hardship based on disclosure of the AGI and other tax information as well as annually certifying the borrower's family size. A borrower's aggregate income based monthly loan payment may fluctuate, that is increase or decrease annually based on changes to the AGI and family size.

To qualify for loan forgiveness after the ten years, a borrower must have participated in the income based repayment plan and while employed full time will have made one hundred twenty on-time and separate monthly payments beginning October 1st, 2007, on the loans for which forgiveness requalifies. Any amount that is forgiven may be subject to the New York state income tax if there is a balance remaining at the end of the repayment period.

Justification

It is known that currently over seventy percent of students take out a student loan so that they can attend college. A college graduate has

an average debt of $30,000.00. Student loan debt can be a road block preventing a graduate from purchasing a home, purchasing a car, building a savings for retirement forcing many students to reside with their parents longer than they initially expected. This can also lead to possible garnished wages and income tax returns seized by the government or money taken from Social Security checks.

Statistics show over 40 million Americans have incurred a student loan debt. Recent studies show that 1 out of every 7 students default on their student loan within three years of beginning repayment. Many recent college graduates find themselves to be underemployed immediately following graduation. Securing a job becomes increasingly difficult for recent graduates. For some if they do find a job they are restricted to a low wage position or sometimes even working a part time job. Statistics show the 56% of recent college graduates are underemployed and working only on a part time basis. Education majors and health majors have the lowest unemployment rate at 3 to 4%. Architecture and construction majors have an unemployment rate of 8%. Liberal arts and social sciences major face a 7 to 8% unemployment rate. Studies show that for technology majors only 38% are working in a job that required a bachelor's degree. Among communication, liberal arts, business, and social sciences majors only 40 to 45% were working in jobs that required a bachelor's degree.

A survey conducted on workers who graduated in the past 2 years showed many recent graduates to hold a large amount of debt from their student loans and are in jobs that do not require a college degree. Only 53% of graduates were able to get a full time position in their field of study. There is also a gap in regards to anticipated earning upon graduation versus their actual salary. Fifteen percent of graduates think they will earn less than $25,000.00 a year while one a third of recent college graduates make that amount or less than that amount. It's estimated that for borrowers who started repayment in 2011 650,000 have already defaulted on their student loans by 2013.

Prior legislative history

None

Fiscal implications for state and local governments

None

Effective date

This act shall take effect on the ninetieth day after it shall become law.