San Francisco Chronicle - (Sunday)
Fair play on student loan debt
It’s disturbing enough to know that 3.8 million student loan borrowers in California owe about $134.3 billion. The true cost of this debt load cannot be fully measured in those numbers. It includes the dreams deferred or even abandoned altogether: to own a home, to get married, to start a family.
The stress is compounded when the unregulated loan-servicing companies who contact the borrowers are ill informed, deceptive or outright abusive.
Oversight of that industry should have fallen within the purview of the federal Consumer Financial Protection Bureau. But the bureau effectively deserted that responsibility under the Trump administration.
Most outrageously, the Trump administration reduced the consumer agency’s powers and withdrew from various lawsuits and investigations even after it had received more than 1 million borrower complaints.
California now must step into the void.
Assemblyman Mark Stone, D-Scotts Valley (Santa Cruz County), has authored AB376 to establish a “Student Borrower Bill of Rights.” It has been endorsed by the major consumer groups and recently cleared the Assembly on a 59-15 vote. It advanced with the support of Bay Area Assembly members, with the exception of San Francisco Democrat Phil Ting, who was absent.
The need to more rigorously hold these loan-servicing companies accountable is not theoretical. A 2017 audit by the
U.S. Department of Education showed that Navient Corp., one of the nation’s largest such firms, may have been forcing borrowers who were struggling with student debt into higher-cost repayment plans than they merited. California is one of several states that have sued Navient. Attorney General Xavier Becerra said in filing the lawsuit last year that the company broke state laws prohibiting unfair competition and false advertising.
“Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college,” Becerra said at the time. Navient has denied any wrongdoing.
Stone’s AB376 would bring muchneeded accountability to the industry. In effect, it would extend the types of protections now afforded to consumers with mortgages and credit cards. AB376 would:
Establish minimum loan-servicing standards to require companies to maintain accurate records, assure that payments are applied correctly and provide correct information about repayment options. Prohibit “abusive” loan-servicing practices (including excessive past-due fees or negative credit reporting because of a consumer’s inquiry) and require procedures for borrowers to escalate complaints to a company’s senior representative. Create a student loan advocate in the state to review complaints and keep the Legislature informed on how the system is working. Empower a student borrower to sue a loan-servicing company if he or she suffers damages as a result of failure to comply with the act.
Student loan debt has become the second-largest type of household debt in the U.S., according to the legislative analysis for AB376. It has emerged as an issue in the 2020 presidential race, with Sen. Elizabeth Warren, D-Mass., taking the most aggressive stance, pledging a sweeping debt-forgiveness program. Most of the other Democratic candidates have pledged some form of relief, from lowering interest rates on student loans to reducing or even eliminating tuition at public colleges and universities to assist future graduates.
It would be a mistake to wait for January 2021 and hope that a new presidential administration will both embrace, prioritize and have the ability to deliver help on the federal level.
“Student debt is the kerosene on the fire of everything we’re worrying about,” said Seth Frotman, former student loan ombudsman at the Consumer Financial Protection Bureau, citing income inequality, housing affordability and the racial wealth gap among the societal problems aggravated by debt.
As Frotman noted, higher education is supposed to be the pathway to opportunity in this nation. But the mountain of student debt — and the exploitation of borrowers struggling to escape it — undermines that ideal. Frotman left the bureau after more than seven years, when the Trump administration “just totally walked away from trying to help borrowers.”
AB376 would not erase that mountain of debt facing Californians, but it would hold the loan-servicing companies accountable if they do not play fair. The bill now goes to the state Senate, which should approve it and send it to Gov. Gavin Newsom for his signature.