Amid a haze of grief after her son's unsolved murder last year, Marcia DeOliveira-Longinetti faced an endless list of tasks — helping the police gain access to Kevin's phone and email; canceling his subscriptions, credit cards and bank accounts; and arranging his burial in New Jersey.
And then there were the college loans.
When Ms. DeOliveira-Longinetti called about his federal loans, an administrator offered condolences and assured her the balance would be written off.
But she got a far different response from a New Jersey state agency that had also lent her son money.
"Please accept our condolences on your loss," a letter from that agency, the Higher Education Student Assistance Authority, said. "After careful consideration of the information you provided, the authority has determined that your request does not meet the threshold for loan forgiveness. Monthly bill statements will continue to be sent to you."
Ms. DeOliveira-Longinetti, who co-signed on the loans, was shocked and confused. But her experience with the authority, which runs by far the largest state-based student loan program in the country, is hardly an isolated one, an investigation by ProPublica, in collaboration with The New York Times, found.
New Jersey's loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks.
The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey's loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.
"It's state-sanctioned loan-sharking," Daniel Frischberg, a bankruptcy lawyer, said. "The New Jersey program is set up so that you fail."
The authority, which boasts in brochures that its "singular focus has always been to benefit the students we serve," has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives.
The program's regulations have destroyed families' credit and forced them to forfeit their salaries. One college graduate declared bankruptcy at age 26 after struggling to repay his debt. The agency filed four simultaneous lawsuits against a 31-year-old paralegal after she fell behind on her payments.
Another borrower, Chris Gonzalez, could not keep up with his loans after he got non-Hodgkin's lymphoma and was laid off by Goldman Sachs. While the federal government allowed him to suspend his payments because of hardship, New Jersey sued him, seeking $266,000 in payments, and seized a state tax refund he was owed.
One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans through tax-exempt bonds and needs to satisfy those investors by keeping losses to a minimum.
Loan revenues also cover about half of the agency's administrative budget.
In 2010, the agency filed fewer than 100 suits against borrowers and their families. Last year, it filed over 1,600. (Some could result from federal loans handled by New Jersey, though such loans make up just 4 percent of the agency's portfolio.)
The cases are handled by debt collectors, who can tack on another 30 percent in fees on top of the outstanding debt.
Marcia Karrow, the authority's chief of staff, said that "the vast majority of these borrowers are happy with the program." She added that New Jersey's loans had "some of the lowest default rates" in the country. But when asked to produce the annual default rates, the agency sent ProPublica and The Times data only for students with strong credit scores, making it impossible to calculate the overall rate.
A spokesman for Gov. Chris Christie said the governor did not control the authority and declined to respond to questions about the loan program. But Mr. Christie, a Republican, appointed its executive director, Gabrielle Charette; he also has the power to appoint at least 12 of the agency's 18 board members and can veto any action taken by the board.
Besides administering the loan program, the authority provides financial aid counseling, conducting hundreds of financial aid nights at New Jersey high schools, where it offers advice about paying for college, including pitching its own loans.
Ms. DeOliveira-Longinetti, who emigrated from Brazil and had long worked as a nanny while raising her son as a single mother, always knew that paying for his college education would be a challenge. Even after marrying her husband when Kevin DeOliveira was in middle school, she knew that their combined income would not be enough to cover the costs. A friend told her about New Jersey's program. That, along with a combination of scholarships, grants and other loans, allowed Mr. DeOliveira to enroll at the University of Vermont.
Since her son was fatally shot, Ms. DeOliveira-Longinetti has made 18 payments to New Jersey. Paying $180 per month, she has about 92 to go.
"We're not going to be poor because of this," she said. "But every time I have to pay this thing, I think in my head, this is so unfair."
A Different Path
For decades, states served as middlemen for federal student loans. Most of the loans were made by banks and were handled and backed by regional and state-based agencies as well as by the federal government. The arrangement was unwieldy, expensive and marked by scandal.
After Pennsylvania's student loan agency lost a public records lawsuit in 2007, documents revealed that the agency had spent nearly $1 million on things like fly-fishing, facials and falconry lessons.
That same year, New Jersey's agency was caught in what amounted to a kickback scheme. The state attorney general found that the agency had improperly pushed one company's loans in exchange for annual payments of $2.2 million. A subsequent investigation by the state's inspector general found that the agency was in "disarray."