The U.S. Department of Education has issued final rules that advocates say will make it easier for borrowers of federal student loans to get out of default, repay the debt, and qualify for additional assistance.
Current law allows defaulted borrowers to "rehabilitate" their student loans through nine on-time payments in amounts that are "reasonable and affordable." Instead of offering affordable alternatives, however, some private debt collectors were calculating the amount due as a percentage of the borrower's total debt or using other tactics that boosted their commissions but that were not viable for borrowers.
The Education Department has intervened, requiring lenders -- before granting rehabilitation -- to offer defaulted borrowers a payment amount similar to what would be recommended under the federal income-based repayment program. As a result, a borrower's monthly payment would not exceed 15 percent of his or her monthly income. The rules -- which take effect on July 1, 2014, also prevent debt collectors from demanding a minimum monthly payment; and lets borrowers in default at least nine months to seek forbearance orally instead of requiring them to submit a written request.