Philadelphia Inquirer

New Jersey Passes 'Student Borrower Bill Of Rights' In A Bid To Crack Down On Loan Servicers

The Philadelphia Inquirer — July 12, 2019

By Bob Fernandez

The New Jersey legislature has passed a "student borrower bill of rights" that regulates companies that service student loans, part of a national trend as America deals with its $1.6 trillion student-debt crisis.

The bill forces companies like Navient, FedLoan, and other student-loan servicers to register with the Department of Banking and Insurance and comply with borrower-friendly protections. Violations would attract a $10,000 fine the first time and $20,000 for subsequent ones. It also creates a student loan ombudsman in the state agency.

The bill is awaiting Gov. Phil Murphy's signature; A spokesperson did not respond on Friday.

State legislators passed a similar bill in late 2017, but it lapsed when then-Gov. Chris Christie didn't sign it.

"New Jersey and other states are looking at what they can do after the complete abdication of oversight by the federal government for oversight of the student loan servicing industry," said Beverly Brown Ruggia, financial justice organizer for the nonprofit advocacy group New Jersey Citizen Action.

Ruggia estimated that 1.1 million New Jersey residents owe more than $44 billion in student loans.

Stephan Lally, 21, a senior at Ramapo College of New Jersey in Bergen County who testified in support of the student borrower bill of rights legislation in June, said that college students aren't trying to "skirt" their debt. "We want a fair way to pay back our debt without going into further debt. We want to start our lives. When servicers aren't using fair practices, they are holding us back."

Maine, New York, Maryland, Colorado, and Rhode Island have passed similar rights bills this year as student debt continues to soar. Critics say that Education Secretary Betsy DeVos has failed to police the student loan industry.

Loan servicers faced thousands of complaints and lawsuits over failing to put student borrowers into income-based repayment plans so they could avoid delinquencies or defaults, and other servicing shortcomings.

Among other borrower protections in the New Jersey legislation is a provision that requires student loan servicers "to evaluate a student loan borrower for eligibility for an income-driven repayment program prior to placing the borrower in forebearance or default, if an income-driven repayment program is available to the borrower."

Another provision in the New Jersey legislation requires a loan service to "apply partial payments in a manner that minimizes late fees and negative credit reporting."

FedLoan is part of the Pennsylvania Higher Education Assistance Agency in Harrisburg, a major state employer and one of the biggest federal student loan servicers under contract with the Education Department. Navient, which is publicly traded, is based in Delaware.

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