Are Student Loan Servicers Required To Provide All Options

States are seeking strategies to mitigate the negative furnishings of educatee loan debt. These efforts include repayment assistance and forgiveness plans. Many states have likewise enacted legislation to create new regulations and consumer protections regarding student loan lending, borrowing and repayment. Since 2015, thirteen states take passed legislation to expand student loan oversight.

Background

Outstanding student loan debt in the U.S. reached $i.53 trillion owed by more than 45 one thousand thousand borrowersin 2018. Every bit borrowers work to repay these loans, many discover the terms and repayment options associated with these loans to exist disruptive and hard to navigate.

In 2017, the Consumer Financial Protect Agency (CFPB) handled approximately 23,000 complaints related to student loan servicing. The CFPB'southward report also constitute that "borrowers assigned to the largest student loan servicers may encounter widespread bug." In 2019-2020, the number of complaints declined to approximately 7,000 complaints filed, just federal loan repayment was largely paused during this menstruation nether the provisions of the CARES Act.

A 2018 survey establish that more than ane in 3 student loan borrowers had difficulty accessing information virtually their loans and repayment status. The same survey found 59% of borrowers experienced unclear guidance about their repayment situation and options from loan servicers. Mutual difficulties for borrowers include:

Lack of information regarding available repayment plans including income-driven repayment options.
Confusing repayment terms and conditions.
Slow or inaccurate processing of loan payments and changes.

Defoliation and difficulty understanding repayment options can forcefulness borrowers to accumulate additional interest, pay unnecessary fees or penalties, and can tiresome down repayment which could pb to malversation or default.

State Action

In recent legislative sessions, states have imposed new regulatory guidelines and created protections designed to assist borrowers understand their repayment options and navigate the loan servicing process. These bills aggrandize student loan oversight to include requirements for student loan servicers every bit well as the creation of a student loan ombudsman to oversee servicers and assist borrowers. Proponents of these bills argue states should take proactive roles in both regulating loan servicers and helping borrowers stay informed well-nigh repayment. Still, loan servicers argue these regulations drive upwards costs and create a confusing patchwork organisation of oversight for student loan repayment.

Loan Servicing Requirements and Licensure

In contempo years, states have imposed new regulatory guidelines for student loan servicers. These provisions normally subject educatee loan servicers to oversight from a state banking or finance authority. Legislation often includes requirements that servicers cannot appoint in unfair or deceptive processes. Some states include specific provisions that require servicers to meet specific rules for responding to borrower complaints. Many states besides provide authority to impose fees on servicers that practice not comply with these requirements.

State Example

Connecticut HB 6915 (2015)- Requires pupil loan servicers to be licensed with the state Cyberbanking Commissioner. Includes provisions that loan servicers may not: utilize any scheme, device or artifice to defraud or mislead pupil loan borrowers; engage in whatever unfair or deceptive practice; knowingly misapply or recklessly apply student education loan payments; or knowingly or recklessly provide inaccurate data to a credit bureau.

Student Loan Ombudsman

States take also created pupil loan ombudsman (or advocates) offices that are charged with overseeing student loan oversight. Common ombudsman responsibilities include:

Reviewing borrower complaints and providing assistance to borrowers.
Compiling student loan borrower and repayment data.
Managing information sharing and publicity efforts between borrowers and their families and institutions.
Providing annual reports to the legislature.

Land Example

Virginia SB 394 (2018) - Establishes the Part of the Qualified Education Loan Ombudsman within the Country Council of Higher Educational activity for Virginia. Ombudsman duties include: receiving, reviewing, and attempting to resolve complaints from qualified didactics loan borrowers; compiling and analyzing information on such complaints; assisting borrowers to understand their rights and responsibilities under the terms of qualified education loans; providing information regarding the problems and concerns of qualified education loan borrowers; analyzing and monitoring the development and implementation of applicable laws and policies; and disseminating information apropos the availability of the Ombudsman to assist with qualified education loan servicing concerns.

Providing Information to Borrowers

In addition to regulatory efforts and ombudsman oversight, states have as well required educational institutions to provide additional data and resources to borrowers and their families. Several states have required the creation of borrower data courses. These courses more often than not require the cosmos and dissemination of education materials relating to educatee loan terms and conditions, repayment options, minimum monthly payments, loan forgiveness programs and income-based repayment options.

State Case

Pennsylvania HB 2124 (2018) - Requires all college education institutions to provide information to students regarding their loan balance and repayment options each year.

Requirements for Private Loan Servicers

Additional oversight is often applied to private educatee loans, which despite comprising less than xv% of full educatee loans in the US, are a apace growing form of student loan debt. Some states have expanded oversight provisions that apply specifically to private loan providers to ensure that borrowers with these loans receive certain information and guidance.

State Example

Illinois HB 1351 (2017) – Requires private loan servicers to provide data most alternative repayment options including policies and procedures for providing these materials to borrowers online.

For boosted examples of student loan oversight legislation, visit the NCSL Postsecondary Bill Tracking Database, which includes a topic for 'Pupil Loan Oversight' legislation.

While states have passed legislation to expand oversight of pupil loan servicers, the federal government has contested some of these regulations. In March 2018, the Section of Education issued a notice of interpretation asserting that state oversight of federal pupil loans "impedes uniquely federal interests." The section guidance was particularly concerned with Massachusetts' lawsuit against a loan servicer but further claimed "attempts past other States to impose similar requirements will create additional conflicts with Federal police force." This policy reversed the guidance from the section in 2016, which stated that state regulations would not preempt federal law.

This announcement prompted the Pennsylvania Higher Education Assist Agency (PHEAA), a loan servicer, to file suit against the country of Connecticut. PHEAA claims Connecticut constabulary puts the servicer in disharmonize with federal police force and risks losing its ability to operate in the land. In June 2019, the 7th U.S. Circuit Courtroom of Appeals issued a ruling that student loan servicers are discipline to state laws related to educatee loan oversight and that these laws are not preempted by the federal government. Legal experts have speculated that boosted court cases will move forrard at the federal level, potentially moving to the U.S. Supreme Court if rulings conflict at the district level.

Additional Resource

NCSL Legisbriefs
- Student Loan Revenue enhancement Incentives (September 2020)
- Student Loan Forgiveness (April 2020)
- Educatee Loan Oversight (January 2020)
NCSL Podcast: A Mountain of Coin: Tackling Pupil Debt | OAS Episode 84 (February 2020)
NCSL Nib Tracking:
- NCSL Student Loan Bill Tracking Database (Updated Monthly)
- NCSL Postsecondary Bill Tracking Database (Updated Weekly)
NCSL Report: "U.S. Student Loan and Debt Levels Ready Tape: What's a Legislature to Do?" (May 2019)