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California legislature passes student borrower bill of rights

AB 376 provides Californians the strongest student borrower protections in the nation  

SACRAMENTO, CA – Californians working to pay off their student loans are poised to enjoy the strongest consumer protections in the country now that the Assembly has passed the Student Borrower Bill of Rights approved by the Senate on Friday.  The bill (AB 376), introduced by Assemblymember Mark Stone, will now be sent to Governor Gavin Newsom for his consideration.

AB 376 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 NextGen California, Student Borrower Protection Center, Student Debt Crisis, and Young Invincibles.

“Millions of Californians who went to college seeking a better future are now facing the daunting challenge of paying off a mountain of debt,” said Suzanne Martindale, senior policy counsel and western states legislative manager.  “Too often, that burden is made heavier by for-profit loan servicing companies that mismanage accounts and steer borrowers into more expensive payment plans. The Student Borrower Bill of Rights will protect Californians from predatory loan servicing practices and help ensure they stand a fair shot at putting these debts behind them.  We urge Governor Newsom to sign this important legislation into law without delay.”

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.

Right now, borrowers have few protections when dealing with student loan servicers.  While these companies are generally prohibited from engaging in unfair or deceptive practices, like any other business in California, they are not subject to industry-specific standards.

AB 376, which is supported by a coalition of 70 civil rights, higher education, and consumer advocacy organizations, would protect Californians by requiring loan servicers to act in the best interests of student borrowers.  It would create 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 would ban “abusive” student loan practices that take advantage of borrowers’ confusion over the loan repayment process and establish 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, AB 376 could 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