As the Trump administration tears down federal protections for student loan borrowers and turns a blind eye to financial industry abuses, it is time for California to act.
California Student Loan Borrowers Deserve Protection
California student borrowers are struggling to climb out from under crushing debt. Meanwhile, student loan companies are getting rich off of lucrative government contracts funded by taxpayer money meant to be an investment in the next generation of Americans. These companies – known as student loan servicers – use slick marketing and shady lobbying to convince lawmakers that they are helping students and their families.
In reality, student loan servicers exploit lax oversight to line their own pockets at the expense of millions of Californians simply trying to achieve the American dream.
To add insult to injury, student loan servicers routinely drive borrowers into delinquency and default by obstructing borrowers’ access to critical repayment protections. In 2017 alone, more than one million Americans defaulted on a student loan nationwide – three times the number who lost homes to foreclosure. Like the fallout from a predatory mortgage, student loan distress is devastating for borrowers and for communities, ruining the financial lives of those it touches – including the seniors, veterans, teachers, nurses, and public servants who too often bear the brunt of servicing failures.
Even the Trump Treasury Department sounded alarms about this broken system, arguing that “Federal student loan servicing currently lacks effective minimum servicing standards” and criticized continuing failures by DeVos’s Education Department.
As Washington turns its back on borrowers, California is fighting back.
California Attorney General Becerra sued one of the nation’s largest student loan company, Navient (formerly Sallie Mae), for cheating borrowers with every type of student loan, at every step of the repayment process. Navient handles loans for more than 1.5 million people in California. Additionally, the State of California launched a new oversight program to scrutinize the practices of student loan servicers and demand new accountability for practices that affect millions of Californians.
These are critical steps to protect borrowers’ rights. But to solve the problem, California needs to keep fighting for Golden State borrowers. Student borrowers cannot afford to wait for Washington to act.
California law should be clear: student loan companies cannot pad corporate profits at the expense of borrowers. California needs to set state standards for handling the tens of millions of student loan bills that come due in CA each year, protecting borrowers when paperwork gets botched, when payments get lost, or when loan companies change. These safeguards exist for homeowners with mortgages and consumers with credit cards, but California student loan borrowers lack the same basic protections.
Ban Abusive Practices
California needs to create new, enforceable rights for all California student loan borrowers, including borrowers who have been the victims of industry abuses. California law should ban abusive practices, ensuring these companies never take unreasonable advantage of borrowers who reach out to their student loan company for help. To hold these companies accountable, in California, individual borrowers, regulators, and law enforcement officials should be able to enforce borrowers’ rights under California law.
Create a New Advocate to Stand Up for Borrowers’ Rights
California should create a new Student Loan Borrower Advocate to respond to consumer complaints, sound an alarm about new breakdowns and industry abuses affecting borrowers, and refer predatory actors to regulators and law enforcement. The California Student Loan Borrower Advocate will also lead the fight to reform the student loan system by calling for changes in law or policy by the California legislature, California agencies, or federal policymakers. Drawing on the experiences of millions of California borrowers, California’s Student Loan Borrower Advocate will also be a champion for borrowers in the national debate about the future of consumer protection in the student loan system.
Student loan companies thrive in the shadows, leaving borrowers, regulators, and law enforcement officials without the data they need to scrutinize individual companies’ practices and spot emerging risks. By shining light on the system through the creation of anew report card for the student loan industry, California will give the public new insight—including when and why student loan borrowers default, and where industry has systematically denied borrowers’ rights to affordable student loan payments. Transparency will also help honest companies compete on a level playing field for the first time.
Join the Fight: Demand a new Student Loan Borrower Bill of Rights
We’re building a new coalition to fight for a California borrower bill of rights. If we are going to succeed and truly protect borrowers, we’ll need to mobilize organizations representing students, workers, consumers, older Americans, communities of color, and veterans. Interested in joining us?
Los Angeles Times
“‘California led the country in enacting a licensing program for private contractors that service federal student loans,’ [Becerra] told me. ‘We are proud of this important program and of our strong student protections in general, but we also know we have a long way to go.’ [He] said nearly a third of California student-loan borrowers are in default or delinquent in payments, which he called ‘a clear indication of servicing failure.'”
San Francisco Chronicle
“State Attorney General Xavier Becerra accused one of the nation’s largest student loan servicers of cheating perhaps thousands of California borrowers…”