In a historic move, the California state legislature this week passed sweeping legislation to protect student loan borrowers.
Called a student loan borrower’s bill of rights, the new law would establish state-wide enforceable industry standards for student loan officers and protect student loan borrowers from unfair, deceptive and predatory practices by students. agents and lenders. The bill was previously approved by the California State Assembly; the state Senate followed suit this week, approving the bill by a 29-9 margin. The bill is now heading to Gov. Gavin Newsom’s office for signature.
California’s new rules prohibit abusive student loan management practices, such as mistakenly directing borrowers to forbear and stepping away from assistance programs such as income-tested repayment. It also creates minimum service standards related to the enforcement of student loan payments and the retention of key records, and would also require specialized customer service training for staff. Importantly, the new law creates an office of the student borrower ombudsman, which would be responsible for reviewing and processing complaints submitted by borrowers, as well as collecting and analyzing key data. And it establishes special protections for military personnel and their families as well as nurses, teachers and the disabled community.
“This Final State Assembly Vote Gives Millions of California Student Loans the Rights and Protections They Need and Deserve” said Seth Frotman, executive director of the Student Borrower Protection Center. “For years Governor Newsom has been a leader in taking action when others fail. He can do it again by signing the Student Borrower Bill of Rights. ”
“With black and Latin communities hit hardest by the COVID 19 crisis and its economic fallout, we are delighted that our legislature has decided to support the millions of student borrowers across the state, especially those who are most vulnerable, ”said Kristin McGuire, West Region Director at Young Invincibles, which supports the bill. “We are one step closer to ensuring that these protections become a reality in California. We applaud the leadership demonstrated by Governor Newsom during this crisis and urge him to immediately sign AB376 into law. ”
The service of student loans is widely seen as problematic. Several state attorneys general have sued top federal student loan officers, alleging widespread misconduct. A new report released last month confirmed that student loan managers continue to have significant problems administering federal loan programs such as Public service loan remission. And even the United States Department of Education’s own Inspector General found important issues with the service of student loans, including a lack of proper oversight.
Critics of the bill question the ability and authority of states to regulate student loan services that are under contract with the federal government, citing the supremacy of federal law over state law. However, several recent court decisions affirmed the ability of states to regulate federal student loan services under state consumer protection laws.