California May Join List of States With “Student Borrower Bill of Rights”
California may be about to become the newest in a growing number of states to have passed a “Student Borrower’s Bill of Rights.”
About 3.2 million Californians currently owe a total of $133 billion in outstanding student loan debt. Nationally, the average balance for those who owe student loans is $37,429. One out of every three Millennials owes at least some student loan debt. In 2017 alone, more than one million Americans defaulted on a student loan nationwide. That’s three times the number who lost homes to foreclosure over this period. More than half a million Californians are currently delinquent on their student loan payments.
The bill, Assembly Bill 376, was introduced into the California Legislature by Mark Stone (D-Monterey Bay).
Stone also introduced the California Student Loan Servicing Act, signed into law in 2016, which created a regulatory licensure program within the state’s Department of Business Oversight. The law gave this agency the authority over companies that service student loans in California.
“Multiple investigations have shown that loan servicers routinely lose paperwork, misapply payments, provide borrowers inaccurate information, and even steer them into more costly repayment options with virtually no accountability,” said Suzanne Martindale, senior policy counsel for Consumer Reports. Her organization co-sponsored the legislation.
What does the Student Borrower Bill of Rights do?
- Servicers must post payments to accounts in a timely manner.
- They must credit overpayments in the borrower’s best interest.
- Servicers must apply partial payments to minimize negative credit reporting and late fees.
- Borrowers are protected against credit damage and fees arising from servicer processing errors.
- The California Department of Business Oversight will create a “report card” that will measure student loan servicing companies on performance indicators. These include default prevention, enrollment in income-driven repayment plans, and other similar metrics.
- Servicer staff who advise military veterans, older borrowers, disabled borrowers to receive specialized training.
- The bill would authorize a consumer who suffers damages as a result of a person’s failure to comply with these provisions to sue for up to treble damages.
What Prompted the California Student Borrower Bill of Rights?
The Complaint (And Navient’s Defense)
- Steering borrowers toward more expensive repayment plans;
- Failing to adequately disclose how students could attain income-driven repayment recertification;
- Misrepresenting the order in which it would apply overpayments;
- Misrepresenting the “present amount due” to delinquent borrowers; and
- Failing to properly discharge the federal student loans of borrowers with a total and permanent disability.
“If the parties were truly interested in addressing the real issues in higher education and student debt, they would direct their focus to:
- Improve financial literacy of students and families and provide better information about the full cost of earning their degree and the cost of any debt incurred to finance that degree—before they enroll in college
- Work to increase graduation rates—dropping out of school is the single largest factor in student loan defaults, and
- Simplify the repayment programs and ease the enrollment process for these programs.
These steps are not easy and require hard work. It is, unfortunately, much easier to file a lawsuit, creating the perception that something is being done.”
Other states with a “student borrower’s bill of rights”
The first state to pass a “bill of rights” for student loan borrowers was Connecticut, which passed its law in 2015. The Nutmeg State’s law created a state student loan ombudsman and required all student loan servicers operating in Connecticut to register with the state. The state could then better monitor complaints and resolutions.
The law also created a data-collecting mechanism that was to provide the foundation for a student loan borrower education course.
Illinois passed one in 2017, with state legislators voting overwhelmingly to overrule a veto by Governor Bruce Rauner. According to Illinois attorney general, that law had the following effects:
- It required servicers to properly process payments;
- It required servicers to provide specialists to provide and explain to struggling borrowers all of their repayment options, starting with income-driven plans; and
Inform borrowers that they may be eligible to have their loans forgiven due to a disability or a problem with the school they attended.
Californians who believe they are victims of student loan servicer misconduct should file a complaint at www.oag.ca.gov/report with the California Attorney General’s Office. Victims may also call (800) 952-5225 or send a letter to: California Department of Justice, Public Inquiry Unit, P.O. Box 944255, Sacramento, CA 94244-2550.
Jason Van Steenwyk is an experienced financial industry reporter and writer. He is a former staff reporter for Mutual Funds, and has been published in SeekingAlpha, Nasdaq.com, NerdWallet, Value Penguin, RealEstate.com, WealthManagement.com, Senior Market Advisor, Life and Health Pro and many other outlets over the past two decades. He is also an avid fiddle player and guitarist. He lives in Orlando, Florida.