Legislation Would Provide the Nation’s Strongest Consumer Protections for Student Loan Borrowers Against Predatory Practices
August 17, 2020 | SACRAMENTO, CA — Today, as part of a growing coalition of more than 70 supporters, 57 state and national civil rights, higher education, and consumer advocacy organizations sent a letter to California Senators, urging passage of the Student Borrower Bill of Rights (AB 376, Stone).
The legislation was approved by the state Assembly last year. It will be considered on Thursday, August 20, by the Senate Appropriations Committee, which will decide whether the full Senate will vote on it before the legislature adjourns at the end of the month.
The letter is available here: https://bit.ly/347DaPH.
Each of California’s more than four million student loan borrowers owes an average of $37,000 in debt. This debt was scarcely manageable in normal times; now, in the midst of an ongoing public health and economic emergency, these loans represent a catastrophic burden.
Loan servicers like Sallie Mae, NelNet, Great Lakes, Navient, or FedLoan Servicing are meant to serve the needs of students and student loan borrowers. Instead, these for-profit companies have been the target of numerous lawsuits and complaints for abusive practices and mismanagement that have frustrated borrowers’ ability to manage their loans, access legal rights to flexible repayment options, and stay out of default. Multiple state and federal investigations have shown that student loan servicers routinely lose paperwork, misapply payments, provide borrowers inaccurate information, and even steer them into more costly repayment options.
For the millions of Californians currently holding student loan debt, paying for school means facing a complex and confusing loan repayment system plagued by a lack of consumer protections. As today’s letter makes clear, this burden is particularly heavy for Black and Latinx borrowers, who are also coping with the disproportionate impact of COVID-19 in their communities.
With soaring unemployment rates and renewed attention to the economic toll of systemic racism, it is critical that borrowers have the ability to protect their financial futures. AB 376 would create enforceable industry-wide standards for loan servicing companies and protect existing and future borrowers from predatory lenders. It will:
- Ban “abusive” student loan servicing practices that take unreasonable advantage of borrowers’ confusion over loan repayment options;
- Create minimum servicing standards related to application of payments, paperwork retention and specialized staff training;
- Establish a Student Borrower Ombudsman within the Department of Business Oversight (DBO) responsible for reviewing complaints, gathering data and coordinating with related state agencies; and
- Grant DBO additional “market monitoring” authorities, to collect better data about the student loan servicing industry.
“Millions of Californians are teetering on the brink of financial ruin, as the COVID-19 pandemic wreaks havoc with no end in sight and limited federal benefits are starting to expire,” said Suzanne Martindale, Senior Policy Counsel & Western States Legislative Manager at Consumer Reports. “Student loan servicers must be required by law to act in borrowers’ best interests, particularly at a time of unprecedented stress and struggle for so many Californians. The Legislature cannot close its session at the end of this month without enacting common sense protections for student borrowers, to help ensure all of our communities can recover from the economic crisis we currently face.”
“Make no mistake, the financial plight of the millions of Californians carrying student loan debt is a crisis of epic proportions — a crisis that creates a serious roadblock to our state’s economic recovery from the pandemic,” said Arnold Sowell Jr., Executive Director of NextGen California. “We cannot stand idly by while student loan payments prevent folks in our state from putting food on their table, saving for the future, or receiving proper medical assistance. The California Legislature must pass the Student Borrower Bill of Rights — not only because it is the economically responsible thing to do but because it is the right thing to do.”
“For years, millions of Californians struggling under the weight of student debt have lacked critical rights and protections,” said Seth Frotman, Executive Director of the Student Borrower Protection Center. “Now as these same borrowers struggle to stay afloat in the midst of a crisis, it is more important than ever that California lawmakers pass AB 376 and deliver lasting support to borrowers across the state.”
“Meaningful, lasting student loan reform is more vital now than ever before,” said Natalia Abrams, Executive Director of Student Debt Crisis. “AB 376 provides essential protections for California’s most vulnerable and underserved borrowers. In a time of both grave economic crisis and of reckoning with racial injustice, AB 376 represents an opportunity for genuine and desperately needed progress.”
“The student debt crisis in California is at critical mass,” said Kristin McGuire, Western Region Director at Young Invincibles. “This staggering debt creates a special hardship for Black, Latinx, and low-income student borrowers, especially in light of the disproportionate impact that the COVID-19 crisis is having in these communities. We need the Legislature to pass AB 376 now in order to protect borrowers across California.”
About the Student Borrower Bill of Rights, AB 376
AB 376, the California Student Borrower Bill of Rights, authored by Assemblymember Mark Stone (D- Monterey Bay) will create new consumer rights for all California student loan borrowers and establish special protections for military personnel and their families, nurses, teachers, and the disabled community. The legislation would require student loan companies to train their staff to understand these rights and create strong new consumer protections to prevent student loan companies from deceiving and misleading student loan borrowers. This bill also creates new penalties for companies that trick borrowers out of their repayment and public loan forgiveness rights and, for the first time, gives individual borrowers new legal remedies to address predatory and abusive practices.
About Co-Sponsors:
Consumer Reports is an expert, independent, non-profit organization whose mission is to work for a fair, just, and safe marketplace for all consumers and to empower consumers to protect themselves. Consumer Reports works for pro-consumer policies in the areas of financial services, as well as telecommunications, health care, food and product safety, energy, telecommunications, privacy and data security, and competition and consumer choice, among other issues, in Washington, DC, in the states, and in the marketplace. Consumer Reports is the world’s largest independent product-testing organization, using its dozens of labs, auto test center, and survey research department to rate thousands of products and services annually. Founded in 1936, Consumer Reports has over 6 million subscribers to its magazine, website, and other publications.
NextGen California is a non-profit organization dedicated to working on California legislative, budgetary, regulatory, and programmatic issues. Originally founded in 2014 to focus on climate and environmental policy, in recent years, NextGen California has broadened its scope to advance solutions to various economic and social justice issues. Specifically, our policy portfolio now encompasses topics such as: criminal justice and immigration; healthcare and food insecurity; mental health and voting rights; student loan debt and the Census; veterans issues and consumer protections; and affordable housing and environmental justice.
The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students. Led by the team of former federal regulators that directed oversight of the student loan market at the Consumer Financial Protection Bureau, SBPC exposes harmful and illegal practices in the student loan industry, drives impact litigation, advocates on behalf of student loan borrowers in Washington and in state capitals, and promotes progressive policy change. SBPC accomplishes these goals by partnering with leaders at all levels of government and throughout the nonprofit sector.
Student Debt Crisis is a non-profit (501c4) organization dedicated to fundamentally reforming student debt and higher education loan policies. Student Debt Crisis (SDC) takes a personal approach to member needs—working directly with borrowers to understand their challenges and fears, repayment obstacles and frustrations. SDC tackles the challenges of loan refinancing and consumer protection policies with media and legislators, as well as educating borrowers and higher education experts with lectures, webinars and special events.
Young Invincibles (YI) is a national nonprofit, non-partisan advocacy and research organization working with and for young adults to address the generation’s most pressing economic challenges by amplifying the voices of young adults in the political process. With a focus on higher education, health care, workforce development, and civic engagement, our work is guided by the belief that every young person – regardless of race, gender, socioeconomic status, or any other factor – deserves a fair chance to achieve their goals and reach financial stability.