Establishing a Student Loan Bill of Rights

To: Chairwoman L’Italien, Chairman Chan, and members of the Joint Committee on Consumer Protection and Professional Licensure

From: Samantha Gibb, Campus Organizing Director for MASSPIRG Students

Date: July 18th, 2017

Testimony in Favor of S.129, An Act Establishing a Student Loan Bill of Rights

MASSPIRG Students is a statewide, non-partisan, non-profit, public interest advocacy organization with 13 chapters across the commonwealth on public universities – including community colleges, state universities, and the UMass campuses. 

For over forty five years we’ve stood up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society. We work to empower students to be active citizens by giving them real-world experience and training to be effective organizers. Working alongside professional organizers and advocates, our student leaders and volunteers act as a watchdog for the public and advocate on a variety of public interest issues.

Today, we are here to advocate for Senate Bill 129, An Act Establishing a Student Loan Bill of Rights, filed by Senator Eric Lesser to protect student loan borrowers from unfair, predatory and deceptive practices of student lending and loan servicing companies.

The cost of college tuition has skyrocketed and ever-increasing numbers of students and their families are driven to seek student loans to pay for it. Data collected by the Institute for College Access shows that in Massachusetts last year, nearly two-thirds of students in an undergraduate program graduated with student debt. This debt amounted to almost thirty-thousand dollars per student on average, representing an astonishing 74% increase since 2004.  Consequently, Massachusetts students have the 11th highest average student debt in the nation, according to the Institute.

Predatory Loan Servicing Practices

Some student loan servicers take advantage of student borrowers by using predatory lending methods that are plainly illegal or unfair, oftentimes by charging exorbitant fees, misrepresenting their products to students, or misleading them into opting for more expensive options. When students can’t pay, they threaten them using illegal methods, such as coercion or harassment.

One such company, Navient (formerly known as Sallie Mae), currently faces not one, but three lawsuits for such predatory behavior, one of which originates from the office of Attorney General Maura Healey. Navient has been accused of charging unreasonably high fees, misinforming students to get them to agree to pricier repayment terms, and even misrepresented federal loan forgiveness programs to borrowers. Navient is currently under investigation by the Consumer Financial Protection Bureau (CFPB) for these activities. In taking on the investigation, Richard Cordray, the CFPB’s director, said during a call with reporters that “Navient has systematically and illegally failed borrowers at every stage of repayment”. According to the CFPB, almost two-thirds of the nearly 1,200 complaints filed by student borrowers since the beginning of the year were related to problems with loan servicing.

Other companies take advantage of students’ debt by claiming to help students repay or settle their loans, often fraudulently. In one case, two students who were struggling with excessive payments to Navient were contacted by a so-called Consumer Protection Counsel (CPC) which offered to “take care of” their loan payments if they paid CPC instead of Navient. However, CPC did nothing, and eventually Navient sued the students for non-repayment, severely damaging their credit history. At some point, CPC changed its name to Omni Management Services and tried to offer a new contract to the same students, yet even when the students declined, Omni kept trying to debit more payments from their bank accounts.

Protecting Students: A Student Loan Bill of Rights

It’s clear that some student loan servicers target and illegally prey upon students with debt, who are already vulnerable. Sen. Eric Lesser’s S.129, An Act to Introduce a Student Loan Bill of Rights, will protect student borrowers from such unscrupulous loan servicers.

Specifically, S.129 protects student borrowers by defining student loan servicers and prohibiting them from engaging in certain predatory practices. By specifically listing prohibited practices, many of which were used by companies such as Navient, this bill would go a long way towards protecting student borrowers.

Furthermore, S.129 would require third-party financiers to obtain a license to offer or manage loans to students. This rule would protect students by vetting potentially fraudulent servicers and allows the Division of Banks to revoke the license of servicers found to engage in illegal or deceptive practices. Thus, businesses like CPC/Omni would no longer be able to defraud students in Massachusetts. In addition, the licensing fees would fund a student loan education course which will help students identify and avoid abusive lenders and predatory practices.

Finally, S.129 creates a Student Loan Ombudsman under the Division of Banks to investigate complaints related to student loan lending and servicing and take action if required. The Student Loan Ombudsman would also be charged with analyzing local, state, and federal laws regarding student lending practices and making policy recommendations, which would be extremely helpful in taking action against fraudulent servicers. Finally, the ombudsman would also be charged with educating students of their rights and responsibilities as well as informing the general public of trends at large. The legislature would remain informed of the ombudsman’s progress as the commissioner of the Division of Banks would be required to give an annual report to the legislature specifically regarding their findings.

It is critical that we defend our students from unscrupulous loan servicers. The need for state oversight could not be more urgent. Had such protections already existed, companies in Massachusetts such as Navient would have been investigated far earlier and far fewer students would have been harmed by them. We hope that you will quickly pass S.129 from your committee in order to accomplish this.