Private Student Loan State Legislation
Today, student loan borrowers owe more than $130 billion in private student loans.
These loans carry higher interest rates, contain fewer rights and protections for borrowers than federal student loans, and lack viable pathways for debt relief. The private student loan market also lacks basic transparency and reporting requirements, which leave students and families particularly vulnerable to predatory actors seeking to profit off of their educational dreams. With recent action in Washington that will limit access to federal student loans, even more families will be forced into the private market to pay for college.
See here for more about our work on private student loans:
States have always played a critical role in protecting borrowers and ensuring a well-regulated financial system. In recent years, Protect Borrowers has helped state legislatures across the country use their authority to enact private student loan-specific consumer protections.
BACKGROUND
Private student loans are made by banks and other private lenders without the involvement of the federal government. They are typically riskier for borrowers than federal student loans and often carry less favorable terms and contain fewer safeguards when borrowers face financial distress. This is particularly concerning given the prevalence of predatory loans made by failed for-profit college operators, big banks, and many unscrupulous lenders. These loans are then often sold and resold using practices that mirror the worst aspects of the crisis-era mortgage market, and frequently result in robo-signing debt collection actions.
The private student loan market is extremely opaque, with little authoritative data and minimal regular market monitoring by any reliable third party. It is also a large market. Unlike the federal student loan portfolio, which is almost entirely held by the federal government, operates pursuant to the federal Higher Education Act, and about which data are routinely made available, the private student lending industry is not centrally regulated. Although there are state and federal laws related to consumer finance and consumer protection, these are of general applicability. Even where these laws do have provisions specific to student loans, they do not create oversight or supervisory regimes.
As a result, there exists little data about the private student loan industry. Due to “limitations on available data” concerning “non-federal student loan origination activity,” even the annual report from the federal Consumer Financial Protection Bureau’s Education Loan Ombudsman relies only on estimates about private student loans based on reporting by a variety of private and non-profit third parties. Although the various regional Federal Reserve Banks publish data related to the broader student loan market, these reports extrapolate using consumer credit panel data from credit reporting agencies that only represent 5 percent of the national population with credit reports, and that are not broken down by industry actors or loan subtypes. There are other reports by private and/or industry groups, which provide helpful insights into the larger private student loan market, but again these reports do not offer a complete overview of the market.
What we do know about this market, however, is cause for concern.
The private student loan market has grown explosively since the recovery from the 2008 financial crisis, outpacing the rate of market growth in all other consumer credit markets. At the peak of the subprime student lending boom, the then-CEO of Sallie Mae, Thomas Fitzpatrick, boasted about his firm’s predatory lending, telling an internal meeting of executives: “If the borrower can create condensation on a mirror, they need to get a loan this year.” While private student loans have long been considered a small part of the overall student loan market, they are on track to play a more prominent role in higher education finance.
Older consumers are the fastest growing segment of student loan borrowers, in part due to the extraordinarily high rates of cosigners on private student loans. As of 2011, over 90 percent of undergraduate private student loans were cosigned. Nationwide, there have been thousands of complaints to state and federal regulators from cosigners who are unable to access documentation on their cosigned loan, receive accurate information on loan payment processing or notice of loan delinquency, or were denied their right to a cosigner release. According to a CFPB report, student loan companies rejected 90 percent of borrowers who applied for cosigner release. Through stringent payment requirements, limited notice of eligibility, and unscrupulous company practices, private student loan companies created insurmountable challenges for borrowers seeking cosigner release. Several state attorneys general have sued over these provisions, obtaining court judgments that these practices are unlawful.
It is also well documented that private student loan creditors clog the state court systems with collection lawsuits for debts that they do not actually own and cannot prove, instead relying on high rates of default judgments against low-income borrowers who cannot represent themselves in court.
MODEL LEGISLATION
You can find our model legislative template here. The legislation sunlights the private student loan industry, sets clear industry standards, bans abusive debt collection practices, and empowers borrowers to enforce their own rights.
The legislation’s critical policy accomplishments are that it:
Establishes transparency in the private student loan market
Most states do not know what companies are making private student loans to their residents. The sample legislation would require companies in the private student loan industry to register with the state’s financial regulator and submit annual reports about its lending and collection activities. Registration is a significantly lighter touch than licensure, and requires fewer resources by the state financial regulator while still ensuring the agency can monitor the market.
Provides protection for cosigners
This sample legislation mandates more robust disclosures; prohibits restrictions that would permanently bar cosigners from release; bars lenders from requiring more than 12 months of consecutive, on-time payments for cosigner release (a current industry standard); and grants borrowers appeal rights when a lender denies a request for release. It also requires release of a cosigner who is totally and permanently disabled.
Ends technical defaults
The sample legislation prohibits lenders from considering a private student loan as defaulted and accelerating the entire amount for any reason other than non-payment. So long as the borrower is current, the loan cannot be treated as defaulted.
Mirrors federal student loan benefits for borrowers living with disabilities
When a federal student loan borrower has a total and permanent disability that prevents them from working, they are eligible to have their debt discharged. This sample legislation would extend the same benefit to private student loan borrowers.
Addresses known robo-signing practices in collection
The sample legislation requires creditors to possess and include certain information in their initial debt collection communications with consumers. The required information—e.g., name of original creditor, chain of title, and payment history—is already necessary to prove a claim in court, but in the instance of a default judgment, is currently not required. The sample legislation therefore, also requires creditors to affirm possession of such documents when initiating a lawsuit and to file them when seeking a judgment, and requires such a filing before the entry of a judgment.
Creates a private right of action
Private rights of action—the ability for private individuals who have been harmed to enforce their own rights in court—are critical for any consumer protection to be meaningfully enforced. Although state regulators and attorneys general are powerful public enforcement offices, they have limited staffing and budgets, which practically reduces their ability to protect all consumers. Enabling affected borrowers to represent themselves and similarly situated borrowers complements the public enforcement powers and ensures greater compliance. The sample legislation’s private right of action includes a fee-shifting provision, which requires any company that is found by a court to have violated the law to pay for the borrower’s litigation costs and attorneys’ fees. Fee shifting is an important tool that allows low-income borrowers to find legal representation, since the lawyers can be confident that they will be paid by the losing side. This also incentivizes borrowers and lawyers only to bring meritorious cases.
The sample legislation above includes each of these protections. Sample legislation for discrete protections is also available:
LEGISLATIVE TRACKER (2025)
More and more states across the country are enacting private student loan protections. This legislative tracker contains laws of which we are aware, and will be updated as bills are filed and additional laws are passed.
Private Student Loan Legislation Tracker
Open Full SheetBy the Numbers
$130 billion
Millions of borrowers owe more than $130 billion in private student loan debt.
Private student loan market > Payday Loan Market
The private student loan market is booming and now larger than the payday loan market and the balance of outstanding past-due medical debt.
1-in-4 CFPB complaints
While private loans make up roughly 8% of all student debt, they make up one-in-four student loan complaints received by the CFPB.
RESOURCES AND INFORMATION
There is a clear and well-documented history of misconduct in the private student loan market. Federal and state regulators, law enforcement, and advocacy organizations have issued reports and filed lawsuits to address industry harms.
Student Loan Lawsuits
- Pennsylvania v. Navient Corp. and Navient Solutions, LLC (3d Cir. 2020)
- 39 State Attorneys General Enter Multi-State Settlement with Navient (Jan. 13, 2022)
- Order Finding Cosigner Release Practices Unlawful, Washington State Superior Court (Mar. 5, 2021)
Investigations and Reports
- Private Student Loans, CFPB (Aug. 2012)
- Mid-Year Update On Student Loan Complaints, CFPB (Jun. 2015)
- Annual Report of the CFPB Student Loan Ombudsman, CFPB (Nov. 2024)
- Total Private Student Loan Balance by State, Student Borrower Protection Center (SBPC)
- Educational Redlining, SBPC (Feb. 2020)
- Private Student Lending, SBPC (Apr. 2020)
- Shadow Student Debt, SBPC (Jul. 2020)
- The Long Legacy of Predatory Private Student Loans: Defrauding Borrowers and Lying to Courts, SBPC et al. (Jan. 2021)
- Co-Opting California Courts: How Private Creditors Have Turned the Judiciary into a Predatory Student Debt Collection Machine, Claire Johnson Raba (Aug. 2021)
- Report of Finding and Recommendations, New York State Private Student Loan Refinancing Task Force (Oct. 2023)
- Testimony to Senate Banking Committee Subcommittee on Financial Institutions and Consumer Protections, Aissa Canchola Bañez (Sept. 17, 2024)