Supporting States in the Fight to Protect Borrowers
By Walter Suskind | September 23, 2019
States are on the front lines of the student debt crisis. State legislators and policymakers are among the first to hear stories of struggling borrowers, learn about industry abuses, and spot problems and trends in communities. Many states are also playing a critical role in overseeing student loan companies and cracking down on predatory practices by enforcing consumer protection law.
As Washington, D.C. turns its back on student loan borrowers, states across the country are taking up the fight to protect them. Over the past year, SBPC has worked with advocacy groups in states across the country that have successfully advanced new legislation to increase borrower protections. In 2019, seven state legislatures passed a series of laws providing new tools to police student loan companies and rein in illegal practices. These states join the ranks of California, Connecticut, Washington, Illinois, and the District of Columbia, that also passed new laws to protect borrowers in the past few years.
The measures of protection in each state differ, but generally include licensing requirements for servicers operating in their states, subjecting these financial companies to common-sense oversight. Some also establish a state Ombudsperson, giving borrowers a trusted contact within their state government to help them navigate complaints against their servicers.
In 2019, more than 5 million student loan borrowers have received increased protections from predatory servicing practices. Collectively, 11 states and the District of Columbia—home to more than 12.2 million borrowers—have taken a stand where the federal government has failed. These states are protecting people who are being crushed under the weight of a broken student loan market. Moreover, these states are creating a roadmap for tackling the student debt crisis that state advocates can use nationwide. Here is a quick overview of recent state-level advances in borrower protections:
In May, Governor Polis signed into law the Colorado Student Loan Servicers Act, establishing licensing requirements for student loan servicers and creating the position of a Student Loan Ombudsperson for borrowers in the state. The Ombudsperson will oversee complaints from borrowers against student loan companies, among other responsibilities. Meanwhile, the new law will require student loan companies to comply with certain reporting requirements and baseline servicing standards. With the implementation of this new law, 761,000 student loan borrowers will have increased protections in the state.
In June, Maine enacted a new law establishing a Student Loan Ombudsman and licensing requirements for student loan servicers. Maine’s Bureau of Consumer Credit Protection will oversee these new features, giving student loan borrowers in the state a single office to turn to when they struggle to get help from their servicer. Additionally, this law subjects student loan servicers to penalties under the Maine Fair Trade Practices Act if they engage in certain prohibited activities such as misrepresenting the amount or terms of a payment or failing to respond in a timely manner to a borrower complaint. The new law will increase protections for the more than 177,000 student loan borrowers in Maine.
Maryland—which previously established the role of a state Student Loan Ombudsman during the 2018 legislative session—passed a new law prohibiting a wide range of common servicing abuses and giving borrowers the right to take their student loan company to court when companies break the law. More than 794,000 student loan borrowers living in Maryland will benefit from these increased protections.
The New York legislature passed a law on April 12th requiring the licensing of student loan servicers. The law imposes regulations on student loan servicer conduct, such as prohibiting them from misapplying payments and requiring that they respond to consumer complaints in a timely manner. The new law also specifies that servicers must affirmatively ask borrowers about how to apply payments when borrowers want to pay more than the amount due on their monthly statement. The new law will increase protections for more than 2,365,000 student loan borrowers in New York.
New Jersey’s new law establishes the Office of the Student Loan Ombudsman and requires student loan servicers to obtain a license before performing any services within the state. The law grants the Commissioner of Banking and Insurance authority to conduct investigations and examinations to acquire and maintain licensure, and establishes recordkeeping requirements for student loan servicers. This new law also prohibits common industry abuses and gives borrowers the right to take their student loan company to court when companies break the law. This increased student loan servicer oversight will help protect the more than 1,122,500 student loan borrowers in New Jersey.
Rhode Island’s new law tasks the Rhode Island Attorney General’s Consumer Protection Unit, the Director of Business Regulation, the General Treasurer, and the Commissioner of Postsecondary Education with reviewing and attempting to resolve complaints from student loan borrowers. Additionally these offices will compile and analyze data on borrower complaints, and make recommendations to the General Assembly to address concerns. The law also requires student loan servicers to register with the state and empowers the Attorney General to take enforce actions when servicers violate Rhode Island’s Deceptive Trade Practices Act. The new law will help the more than 134,400 student loan borrowers in Rhode Island.
Nevada passed legislation to create a Student Loan Ombudsperson within the Office of the State Treasurer to help student loan borrowers navigate their loans. The Ombudsperson is tasked with helping borrowers resolve complaints against student loan servicers, ensuring that student loan borrowers understand their rights and responsibilities, and working directly with individual borrowers to help them avoid default. This will provide vital support for the over 317,100 borrowers who live in Nevada.
While there is still much work to be done and millions of borrowers in desperate need of protection from predatory practices, these states are shining examples of what is possible. As momentum continues to build, we’re excited for more action as states continue working to pass legislation that will help struggling borrowers.
Learn more about our state work here.