Good news for those overwhelmed by student loan debt: The Education Department has just decided on new regulations that could help protect you.
Student loan debt has nearly tripled in the past eight years, so it's no surprise that more distressed borrowers are having trouble repaying their debts—and even falling into default.
Now, new rules set to go in place next year could make getting back on track after a default more attainable, The New York Times reports.
The regulations, which only apply to federal student loans—not private—are meant specifically to make it easier to "rehabilitate" loans after a default, or clear the default from a borrower's record. Even though federal law currently requires that borrowers be able to work their way out of default after making a total of nine on-time payments, the payments being offered by some debt collectors were often unreasonable and simply unaffordable.
The companies "were not appropriately counseling borrowers on how to get out of default," Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, told the Times. "They were payments based on what was most profitable for the collector."
Under the new rules, borrowers who want to work their way out of default must be offered a reasonable plan akin to the federal income-based repayment program as their first option. This means that a borrower would never have to devote no more than 15% of his monthly income to student loans. The rules also clarify the limitations of loan "forbearance," which pauses payments while the loan continues collecting interest. The new standards don't require forbearance requests to be in writing if the borrower has been delinquent for at least nine months (although forbearances based on oral requests are limited to 120 days). The new rules also ensure that the borrower receives a clear, written explanation of what that request will ultimately mean for the borrower's loan.