Student loan ombudsperson is working, let’s fund it

With Supreme Court decision looming, borrowers need our help

Originally posted in Commonwealth Magazine

IN TODAY’S UNPREDICTABLE economy, the future of nearly 1 million student loan borrowers in Massachusetts is particularly precarious. Combined, they owe a whopping $31.7 billion in student loans. Their fate lies in the hands of the nine Supreme Court justices who are expected to rule on President Biden’s student loan cancellation in a few months. Many observers expect the conservative court will strike down the president’s plan.

Since 2001, student debt has grown faster in Massachusetts than almost every other state in the nation. Student debt disproportionately burdens women, who collectively hold two-thirds of all student debt, and people of color – further exacerbating existing income and wealth gaps.

Unlike mortgages or credit cards, student loans offer little to no consumer protections. In addition, it is still extremely hard to discharge student loans, even in bankruptcy. The predatory student loan servicing industry offers borrowers few opportunities to reduce their enormous debt burden.

Multiple investigations have found that loan servicers routinely work against borrowers’ best interests by steering students into repayment options that can add more interest to their loans, pushing many borrowers into default. Even in the midst of the pandemic, these servicers continued to prey on borrowers, keeping them in the dark about their federal payment relief options.

To our great credit, Massachusetts took an essential step in 2021 of establishing a Student Loan Borrower Bill of Rights. This law requires student loan servicers to be licensed at the state level, prohibits servicers from engaging in predatory practices, and, most importantly, establishes a student loan ombudsperson within the attorney general’s office to resolve complaints and help borrowers navigate their repayment options.

In its first year, the ombudsperson’s office assisted hundreds of student loan borrowers. The most common request involved borrowers trying to simply understand their loan balance. In its recent report filed with the Legislature, the office paints a grim picture of what our student borrowers face.

Many reported that their loans had been in repayment for nearly 20 or more years. Often, these borrowers said that they had been steered into forbearance schemes by loan servicers, instead of being offered more affordable income-driven repayment plans. Almost half of these borrowers indicated that time spent in forbearance had added to their total debt.

The accomplishments of the ombudsperson office over this short period of time are promising. While the state should be proud of the steps taken to establish this office, more needs to be done to support it and the critical services it provides. Case in point – the ombudsperson office does not receive a cent of direct funding from the state’s annual budget.

With the Supreme Court decision on the student loan cancellation program looming, the Massachusetts Legislature must dedicate significant resources to enable the ombudsperson to respond to the tidal wave of borrowers who may soon be required to begin making payments again.

Student loan borrowers had their payments suspended by then-President Trump more than three years ago. They’ve survived the COVID pandemic, but let’s not kid ourselves, most haven’t been setting aside this money to cover student loan payments once they restart. Amid record inflation, they’ve been spending it on rent, transportation, food, child care, and utilities.

Imagine the shock they will experience when the government starts demanding $460 per month, on average, to pay off their student loans. Now, imagine what the predatory lenders in the student loan industry will do to these desperate people.

They deserve our support. The Legislature must provide direct funding for the Massachusetts ombudsperson office.

Bob Hildreth is the founder of the Hildreth Institute, a non-profit research and policy center dedicated to restoring the promise of higher education as an engine of upward mobility for all.