The Education Department has finalized new rules that can help struggling student loan borrowers by imposing stricter requirements on debt collectors.
One problem has been that some creditors have not been disclosing the most favorable payment options in cases where borrowers want to “rehabilitate” loans that are in default.
In its final rules, the Education Department requires that borrowers who want to rehabilitate loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option, meant to help borrowers who have high debt in relation to income, caps a borrower’s monthly payments at 15 percent of his or her monthly income….
In addition, some debt collectors had demanded minimum monthly payments without disclosing more affordable alternatives, even though federal student aid law does not require minimum payments. The rules specify that payments in rehabilitation must not be a required minimum amount.
Rehabilitating a loan makes a borrower eligible for additional student aid. It is hoped that additional borrowing will be accompanied by serious consideration about how the loans will be paid back.
Q&A on the new student loan rules:
■ When do the new rules go into effect?
Most take effect July 1 of next year. But lenders and schools may carry out some of the rules, like the one on forbearances, right away if they choose.
■ Do these rules apply to private student loans?
No. They apply to loans made or guaranteed by the federal government.
■ What if I don’t think I am being offered a fair repayment plan?
Complaints can be made to the Education Department at http://www.myeddebt.com.