Guide to the Student Loan Bill of Rights
Student loan protection for borrowers has been a long time coming.
Luckily, there’s a new bill making its way through California’s state legislature that, if passed, would establish new student loan protections for borrowers in the Golden State.
This would be welcome news to the students who have found themselves with high loan balances and unclear guidance on how to pay them back. (According to the bill , over 1 million borrowers in California defaulted on their student loans in 2017—three times the number who lost homes to foreclosure in the same period.)
The gravity of the student loan situation is reflected on both the national and the state level. Borrowers hold $1.49 trillion in student loan debt in the United States, with $125 billion of that debt in the hands of 3.7 million California residents, netting out to around $33,000 per borrower, on average.
And as if paying back a student loan isn’t hard enough, the student loan market has dealt with its fair share of predatory practices. California is hoping to lead the charge on student loan protections, setting a standard that other states can follow.
The Student Borrower Bill of Rights, Assembly Bill 376, aims to tighten protections for California borrowers from servicing abuses that could end up costing them. Here’s what you need to know.
What Is the California Student Loan Borrower Bill of Rights?
Brought to the California State Assembly by Assemblymember Mark Stone, this legislation would establish consumer protections against predatory practices within the student loan industry.
The bill is being co-sponsored by Consumer Reports and other advocacy groups such as NextGen California, Student Borrower Protection Center, Student Debt Crisis, and Young Invincibles. The bill passed through the Assembly and Senate and is currently in committee.
The Student Borrower Bill of Rights focuses on private loan servicers, who act as the primary point of contact for most borrowers.
If a borrower has a question about their loan, wants to make an additional payment to their loan, or wants to change their repayment plan as is allowed by federal plans, they contact their servicer. The service provider acts as a recordkeeper for the loan and as a result, is where borrowers go for information on their loans.
According to the bill, the Consumer Financial Protection Bureau (CFPB) has continued to find that borrowers encounter servicers that engage in practices such as discouraging borrower-friendly alternative payment plans, failing to respond to questions about loans, overturning known payment processing errors, and generally failing to provide sufficient information to borrowers regarding their loans.
In recent years, these companies have been the target of lawsuits for abusive practices and mismanagement. Says Suzanne Martindale for Consumer Reports : “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.
“At a time when the U.S. Department of Education has refused to set loan servicing standards to help borrowers, it’s critical for states like California to lead the way and address these longstanding abuses.”
This won’t be the first student loan-related bill in California in recent history—in 2016, California passed the Student Loan Servicing Act , requiring all student loan servicers to obtain licenses to operate in California.
Servicers in the state are also subject to routine oversight by the Department of Financial Protection and Innovation. The current bill looks to build on the 2016 bill, establishing a standard of practice for student loan servicers.
AB 376 states that “the State of California has an opportunity and an obligation to act” and that “with the increasingly uncertain federal landscape, it is now more important than ever to ensure that California student loan borrowers will be given meaningful access to federal affordable repayment options and loan forgiveness benefits, reliable information, and quality customer service and fair treatment.”
What Does the Student Borrower Bill of Rights Hope to Accomplish?
Behind the legislation is the desire to promote meaningful access to the services promised by federal student loans: affordable repayment and loan forgiveness benefits for student loan borrowers, and the ability to rely on information about their loans from service reps.
One goal of AB 376 is to build upon the Student Loan Servicing Act of 2016. The bill would strengthen the state’s ability to protect borrowers by creating minimum standards for student loan servicing companies and helping to improve oversight within the industry for California residents. Here is an overview of key points outlined by the bill, according to Consumer Reports :
• Ban “abusive” student loan servicing practices that take unreasonable advantage of borrowers’ confusion over loan repayment options
• Create minimum loan servicing standards to ensure fair application of payments, improved record-keeping on borrower accounts, and proper staff training so borrowers are informed of more affordable payment options
• Establish a Student Loan Advocate to review borrower complaints, gather data, and issue reports to the state legislature
• Grant the Department of Financial Protection and Innovation additional “market monitoring” authorities to collect better data about the student loan servicing industry.
Ultimately, the bill’s creators hope it will be a guide for other states—or federal law. The text of the bill points to the lack of action by federal legislatures to combat widespread abuse, even though the Office of Inspector General at the United States Department of Education reported improper practices at each of the largest student loan servicers.
What Can Borrowers Do Now?
While the bill seems to be taking the necessary steps to protect borrowers from unscrupulous loan servicers, it does not solve the problem of nefarious loan servicing practices. Additionally, this bill does not seek to relieve any of the existing student debt burden held by borrowers, which is currently a topic of national conversation.
But that doesn’t mean there aren’t steps that borrowers can take to help make sure they’re set up for success. First, borrowers may find the simple act of identifying and organizing student loans could bring clarity.
You could list out each loan along with the student loan servicer, the interest rate, and the balance. It might be a good idea to learn as much as you can about your loans, including (and especially) the terms of your repayment.
If you have federal loans, you could make sure that you are using an appropriate repayment plan. If you don’t select another plan, most federal loans will be placed into the standard 10-year repayment plan, but there are other options.
For those borrowers struggling to make their monthly payments, moving to a more affordable income-driven repayment plan is generally a better option than missing loan payments.
If you do find yourself in a position where you need to miss a loan payment, you could contact your servicer to discuss your options as well.
If you have private loans, you are unlikely to have as many options for managing your student loan payments, such as income-driven repayment plans or options for deferment or forbearance.
Because the interest rates on student loans vary, borrowers who are looking to pay off their debt might want to focus on paying off the loans with the higher interest rates first, while also making minimum payments on any other debt.
It may also be possible to reduce the overall interest rate on student loans and consolidate loans through student loan refinancing. Refinancing is the process of paying off your old loans with a new loan through a private loan refinancing company like SoFi.
You can check your rates with SoFi in just a few minutes. There’s no obligation to sign up, and checking won’t affect your credit score1. For many borrowers, SoFi has been a breath of fresh air in an industry that hasn’t always felt friendly.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. SoFi Student Loan Refinance CLICK HERE for more information. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.