July 1, 2014 marks the date for important new changes to the federal student loan program. One of the most important chages relates to improvements in the student loan rehabilitation program. These new rules affect both FFEL and Direct Loans.
Here is a summary of the new rules affecting the student loan rehabilitation program:
1. A written agreement is required for both Direct Loan and FFEL rehabilitation.
2. Calculating the “reasonable and affordable payments” is bsed on the the 15% income based repayment (IBR) formula.
When you request a student loan rehabilitation payment, the collection agent will then ask you for your most recent adjusted gross income (AGI) or other income (e.g. public assistance). The collection agency will use the IBR calculator (based on the 15% IBR formula) to come up with a preliminary rehabilitation payment. Then, you will be required to submit documentation to substantiate your income.
Under the new system, despite what the collection agencies may say, you do not have to be eligible for IBR in order to make the 15% IBR calculated payments during the rehabilitation period. Collection agents will be using the 15% IBR formula (and the IBR calculator) to determine “reasonable and affordable payments”.
Please not that if you have a parent PLUS loan or are otherwise not eligible for an Income Based Repayment plan, the collection agent will use the 15% IBR formula to determine your payments during your rehabilitation – but your monthly payments will likely go up after your rehabilitation is completed.
You may be asked to make a “good faith” payment while your application is being processed. As long as your “good faith” payment is greater than or equal to your rehabilitation payment, those “good faith” payments count toward the nine months of required payments.
Under the rules, if your subject to an administrative wage garnishment, you have a one time right to have the garnishment suspended if you make five (5) required rehabilitation payments. In addition, the new rules will guard against the common collector practice of requiring higher than required rehabilitation payments just to make higher commissions.