Governor Newsom signed CFT co-sponsored AB 376, the Student Borrower Bill of Rights, on Friday, September 25. This critical piece of legislation will bring much-needed reforms to the student loan market and regulate the private sector companies that service both federal and private student loans for California borrowers.
This bill will make California the first state in the nation to create a comprehensive set of rights for people holding student debt, by requiring student loan companies to treat borrowers fairly and giving borrowers the right to hold these companies accountable when they fail to meet basic servicing standards.
The student debt burden hits virtually everyone — but it falls disproportionately on women, who collectively hold two-thirds of all student debt, and on people of color, exacerbating existing income and wealth gaps. According to a new study, a typical white male borrower pays off 44 percent of his debt 12 years after starting school, while the typical black female borrower sees her balance grow by 13 percent in that time.
For the 3.7 million Californians currently holding $147 billion in student debt, leaving school means facing a complex and confusing loan repayment system that can make the loan burdens even worse. Loan servicers like Sallie Mae, Navient, or FedLoan Servicing are the gatekeepers for everything a borrower needs to do to manage a student loan. But as multiple investigations have shown, loan servicers consistently get in the way of borrowers’ ability to manage their loans, steering them into options that can add more interest to their loans and even pushing some borrowers into default.
Unlike mortgages or credit cards, there is no industry-wide framework at the federal level to regulate the student loan industry. As a result, people with student loans do not have safeguards to help them get out of debt. To address these longstanding problems, AB 376, carried by Assemblyman Mark Stone, D-Santa Cruz, will create enforceable industry-wide standards for loan servicing companies.
The new law will do the following things:
- Ban “abusive” student loan servicing practices that take unreasonable advantage of borrowers ‘confusion over loan repayment options;
- Create minimum servicing standards related to application of payments, paperwork retention and specialized staff training;
- Establish a Student Borrower Advocate within the Department of Business Oversight (DBO) responsible for reviewing complaints, gathering data and coordinating with related state agencies; and
- Grant DBO additional “market monitoring” authorities, to collect better data about the student loan servicing industry
There are simply too many student loan servicing companies that mismanage student loans and conduct business in harmful and deceptive ways. With millions of Californians now struggling under the combined weight of student loan debt and the economic shocks caused by COVID-19, student loan borrowers deserve basic consumer protections now more than ever.
CFT co-sponsored AB 376 takes a bold step in the right direction.