Why Massachusetts Needs its Own Student Loan Bill of Rights 

Click to download this issue paper

    • An alarming trend has emerged in which the federal government is systematically failing at overseeing student loan servicing agencies.
    • Reports show that since President Trump’s appointees assumed control of the CFPB, the agency has not taken a single substantive action to stand up for student loan borrowers.
    • The Trump/DeVos administration have signalled repeatedly that they will turn a blind eye to student loan servicers’ increasingly deceptive, predatory, and illegal practices.
    • Meanwhile, there is mounting evidence of too many instances where servicers routinely fail to advise borrowers about the right repayment plans, leaving them saddled to pay more debt than necessary. 
    • According to the Federal Student Aid Office’s own reporting: 92 percent of the monitored calls had at least one instance of a servicer failing to inform a borrower about all available repayment options and 61 percent of the oversight reports included examples of loan servicers not following guidelines or the law.
    • In absence of federal leadership on regulating the loan servicing industry, states have no choice but to enact their own Student Loan Bills of Rights to protect their student loan borrowers from profit-seeking predatory actors.
    • Ten States have already enacted their own student loan borrower protections standards, with New York, Maine, Maryland, Colorado, and Nevada joining then in 2019. Other States, such as California, New Jersey, and Rhode Island are steps away from passing their own Student Loan Bill of Rights.

FULL REPORT:

Student loan borrowers have significant difficulty paying off their student debt. While their debt burden has been growing steadily with increasing college costs, the agencies servicing the loans have been, at best incompetent and at worse predatory, knowingly misleading borrowers to increase their profits.  

Student loan servicers are privately contracted by the federal government to service student loan borrowers, advise on repayment plan options, and collect payments. However, as Navient, one of the largest servicing agencies, openly admitted it in a lawsuit, they feel no obligation to act in the interest of the consumer. But worse, they have been found to be systematically cheating borrowers by not fully informing them about the most suitable repayment plans. Instead companies such as Navient have misguided borrowers into programs that benefited their company. For instance, putting borrowers into forbearance is not only more lucrative for servicing agencies, it is also considerably simpler than the paperwork required for an income-based plan. The Consumer Financial Protection Bureau (CFPB) said it found that by putting 1.5 million borrowers in consecutive forbearances, Navient added $4 billion to outstanding student loan debt.

In 2015, Obama sought to increase oversight of the servicer industry by issuing a series of directives geared to improving customer services, enhancing consumer protection, and increasing servicers’ accountability by introducing performance-based contracts. Agencies were incentivized to provide effective counselling and customer services and to advise borrowers on plans to avoid default with the promise that they would be allocated more loans to service. 

Working closely with the CFPB, the Obama administration also established clear rules and guidelines for loan servicers about the procedures to follow when advising borrowers about their loans. Meanwhile, Congress mandated the creation of a  student loan ombudsman position under the CFPB, who would be responsible to mediate and resolve disagreements between borrowers and servicers, and to keep a database of all student loan complaints to be analyzed and published yearly in a written report.

One of the first decisions Betsy DeVos made as Secretary of Education was to repeal Obama’s directives. She also ordered the CFPB to back off on overseeing the loan servicing industry. These pressures led to the resignation of the agency’s director Richard Cordray, who was replaced by Trump’s Office of Management and Budget Director, Mick Mulvaney, and to the resignation of the agency’s Student Loan Watchdog, Seth Frotman, whose position has been left vacant for more than six months now.

Seth Frotman went on to establish his own not-for-profit organization, the Student Borrower Protection Center (SBPC), where he continues the fight for student loan borrowers and their rights for basic consumer protections. A SBPC report highlights that since President Trump’s appointees assumed control of the CFPB, the agency has not taken a single substantive action to stand up for student loan borrowers.

Meanwhile, a new report by the Education Department’s Inspector General (IG) , shows an alarming picture of the government systematically failing to oversee its student loan servicing agencies. According to the Federal Student Aid (FSA) Office’s own reporting: 92 percent of the monitored calls had at least one instance of a servicer failing to inform a borrower about all available repayment options and 61 percent of the oversight reports included examples of loan servicers not following guidelines or the law. 

The report highlights that the FSA was aware of these malpractices but did not make use of the clauses embedded in servicers contracts which would allow for a variety of punitive actions such as recovering money from the servicers for borrowers who have been serviced incorrectly. This inevitably further emboldened loan servicers to pursue whichever practices were most profitable for them.  

The Trump/Betsy DeVos administration is also aware of the systemic abuses, but has been unwilling to address the issue. In fact, they have fiercely defended the servicers making it clear that they are not in favor of regulation. More importantly, they are also standing in the way of many states seeking to create their own consumer protection standards, rules and guidelines to oversee loan servicers. But states are not ready to back down! Eight states have already enacted their own bill of Rights and 13 have drafted proposed legislations in 2018 or 2019, including Massachusetts. Senator Eric Lesser and Representative Natalie Higgins, have filed “An Act establishing a student loan bill of rights” (S.160,H.998) which has gathered significant support by legislators. Additionally, Representative Muradian has filed “An Act establishing a student loan bill of rights” (H.1069). 

Lesser and Higgins’ bill would give Massachusetts its own Student Loan Ombudsman within the  Attorney General’s Office, who would provide assistance to student loan borrowers in exploring repayment options, applying to income-driven plans, avoiding or getting out of default, ending wage garnishments, and tax refund interceptions or benefits offsets. In addition, it would also resolve disputes with loan servicers, stop harassing collection calls, and streamline applications for loan discharges. While leading efforts to address complaints, the Ombudsman would compile them to report them to the state’s Division of Banks who would maintain a consumer assistance unit. 

The bill would also allow state regulation to be put in place so that student loan servicers would be required to obtain licensure from the state’s Division of Banks. The Commissioner of Banks would be empowered to revoke a loan service company’s license if the business was found to be engaging in abusive practices such as overcharging students or steering them into costlier repayment plans. 

Our own Student Loan Bill of Rights would ensure that every Massachusetts borrower receives robust consumer protection and effective assistance, creating adequate oversight to ensure that the student loan industry is helping borrowers, not its own profit margins.