With the student loan servicing market under fire from the Consumer Financial Protection Bureau (CFPB) over claims of widespread abuses, the Senate in Illinois passed legislation aimed at overhauling student loan servicing and protecting student loan borrowers as a result.
Earlier this month, Illinois Attorney General Lisa Madigan announced the passage of Senate Bill 1351. As drafted by Madigan and Senator Daniel Biss, the passage of the bill would create a Student Loan Bill of Rights to protect borrowers from what the lawmakers call “abuses and failures in the student loan industry” after Madigan’s investigation into student loan servicing practices. The legislation passed 34 to 15 with one Senator voting present. It now goes to the House of Representatives in Illinois where Rep. Will Guzzardi is sponsoring the bill.
“This bill is critically important now that the U.S. Department of Education has abandoned student loan borrowers by revoking reforms to prevent the abuses uncovered in my investigation,” Madigan said in the press release announcing the bill passage, “These commonsense measures will improve the financial futures of student loan borrowers, their families and our economy.”
The legislation is taking on new urgency, at least in the eyes of supporters, given the moves by the U.S. Department of Education to roll back some of the Obama era protections for student loan borrowers. Despite Madigan’s best efforts, the Department of Education announced in March that it was rescinding a rule that prevents loan servicers from tacking on collection fees as long as the borrower is in repayment or rehabilitation within sixty days of default.
Under IL Senate Bill 1351, the Student Loan Bill of Rights would prohibit student loan servicers from misleading borrowers, and it would require the industry to properly process payments. It also would offer access to experts that can explain all the repayment options for struggling borrowers while also alerting customers who may be eligible for student loan forgiveness due to disability or a problem at the school of attendance.
A student loan Ombudsman would also be created, and student loan servicers would be required to obtain a license to service loans in the state. According to AG Madigan, borrowers in Illinois often have problems with student loan servicers with complaints ranging from failure to inform borrowers about cheaper options to not being able to consistently answer customers’ questions.
At the start of the New Year, the CFPB charged Navient, the nation’s largest student loan servicing company in the country, with cheating borrowers out of billions of dollars by creating obstacles to paying back loans, resulting in higher interest rates and balances.
According to CFPB, Navient, the former unit of Sallie Mae, provided borrowers with faulty information about paying backing loans, processed payments incorrectly, and failed to act when borrowers complained. The CFPB is seeking relief for Navient’s borrowers who were affected. Navient has fired back by vowing to fight the CFPB’s claims, and the servicer has even asked a court to toss out the lawsuit. The main argument contends that the consumer watchdog “invents new rules from whole cloth and claims that Navient failed to comply with them in the past.”
Author: Dave Rathmanner
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