California law provides strongest student borrower protections in the nation
SACRAMENTO, CA – Californians with education debt will soon enjoy the strongest consumer protections in the nation now that Governor Gavin Newsom has signed into law the Student Borrower Bill of Rights. The new law goes into effect on January 1 and aims to protect borrowers from loan servicing abuses that can make debts grow more costly and trigger defaults.
Consumer Reports co-sponsored the legislation with the California Federation of Teachers, NextGen California, Student Borrower Protection Center, Student Debt Crisis, and Young Invincibles. California’s landmark new law was supported by a broad coalition of civil rights, higher education, and consumer advocacy organizations.
“For most Californians, paying for college means going into debt that can haunt them for years before it is finally paid off,” said Suzanne Martindale, senior policy counsel and western states legislative manager. “Borrowers face a complex and confusing loan repayment system plagued by a lack of consumer protections and shoddy treatment that can add time and money to their loans.
Martindale continued, “The Student Borrower Bill of Rights establishes the strongest standards in the nation to ensure student loan companies treat Californians fairly by acting in borrowers’ best interests. California’s comprehensive student borrower protections are a model for other states for holding loan servicers accountable when they mismanage accounts or engage in predatory practices.”
Student loan servicers are the main point of contact for borrowers – taking payments, keeping account records and handling requests. In recent years, these companies have been the target state and federal investigations for abusive practices and mismanagement that have frustrated borrowers’ ability to manage their loans, access legal rights to flexible repayment options, and stay out of default.
California’s Student Borrower Bill of Rights (AB 376), introduced by Assemblymember Mark Stone, creates standards that require loan servicers to apply payments in a way that minimizes extra fees or charges, improve record-keeping, and train staff to provide borrowers with accurate information about their repayment options. It bans “abusive” student loan practices that take advantage of borrowers’ confusion over the loan repayment process and establishes a student loan advocate to review borrower complaints, gather data, and issue reports to the state legislature.
For the 3.8 million student loan borrowers living in the state, the new law will provide much needed relief. Californians currently have over $147 billion in outstanding education debt with an average debt of $38,530. An estimated 508,520 Californians are behind on repaying their loans – and these numbers could dramatically worsen as the COVID-19 pandemic continues with no end in sight.
California previously enacted legislation requiring student loan servicers to be licensed and is one of 13 states that have advanced legislation in recent years to strengthen oversight of student loan servicers. States have been taking action since the Department of Education under Secretary Betsy DeVos has refused to set loan servicing standards to protect struggling borrowers.
Michael McCauley, michael.mccauley@consumer.org, 415-902-9537