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Bill Would Provide Protections to Student Loan Borrowers

Wade Davis called Navient’s customer service in March, hoping to adjust the payment plan for his student loan. Davis, 36, a freelance musician seeking full-time employment, said he couldn’t commit to his plan.

After telling a representative from Navient — one of the major student loan servicing companies — of his current financial situation, the representative informed him he would have to sign up for a month-to-month payment plan that Davis said isn’t feasible with his current financial situation.

Reiterating his financial struggles, Davis said he was frustrated with the representative whom he described as “rude” and “snarky” and who threatened litigation.

“They know what they are doing,” Davis said of the loan servicing company. “They have a license to treat people any way.”

A bill passed in the Maryland General Assembly would provide protections for Davis and other student loan borrowers who have complained of predatory behavior from loan servicers.

The legislation comes months after a report by the Maryland Office of the Inspector General claimed servicers placed borrowers in adverse situations.

House Bill 594, sponsored by the late House Speaker Michael E. Busch (D), would prohibit student loan servicers from engaging in any deceptive practice — like giving false information to students or misapplying or refusing to correct misapplication of payments.

The legislation was introduced at the request of Attorney General Brian E. Frosh (D). It awaits the signature of Gov. Lawrence J. Hogan Jr. (R).

The legislation also would require servicers respond to a written inquiry or complaint within 30 days and allow a student loan ombudsman to refer complaints to the office of the Commissioner of Financial Regulation, the primary regulator of financial institutions in Maryland.

In 2017, the Consumer Financial Protection Bureau — the federal agency tasked with oversight of banks, lenders and other financial companies — sued Navient for what then-bureau Director Richard Cordray called “failing borrowers at every stage of repayment.”

According to the Consumer Financial Protection Bureau, of the 878 complaints related to student loan servicing from Maryland borrowers, 402 are in regard to servicing problems by Navient.

While Davis, a Baltimore resident for the last 10 years, said he understands it is the job of servicing companies to receive payments from borrowers, he said he wasn’t appreciative of what he believes was “predatory” behavior. He did not file a complaint, and said he was eventually placed on a new plan after tweeting directly to Navient and speaking with them again.

Navient did not respond to multiple requests for comment on Davis’ claims.

The Office of the Inspector General within the U.S. Department of Investigation, an independent watchdog, released an audit in February regarding the department’s oversight of its student loan servicers.

The audit suggests the department did not do enough to hold servicers accountable when they strayed from their contracts.

According to the audit, 61 percent of reports showed noncompliance with federal requirements, including “failure to comply with requirements relevant to forbearances, deferments, income-driven repayment repayment, interest rates, due diligence, and consumer protection.”

The Department of Education hired eight loan servicers, private sector companies including Navient, to handle student loan repayment.

“I’ve never experienced a private loan [servicing] company that is out to see that you are performing well,” Davis said.

In response to the lawsuit filed by the Consumer Federal Protection Bureau, Federal Student Aid — which works in the Department of Education — requested an internal review of Navient’s practices.

When asked for response to the claims made by the Office of the Inspector General, Navient provided Capital News Service with a 2018 statement from the Department of Education that states the Federal Student Aid review “did not identify instances of systematic non-compliance, and did not result in findings, sanctions, or the establishment of a corrective action plan.”

According to written testimony submitted by the office of the Maryland attorney general, the Consumer Financial Protection Bureau has received 1,768 complaints regarding student loan servicers from Maryland borrowers.

Many of these complaints include issues over lost paperwork, misapplied payments, servicers failing to correct misapplications and lack of information regarding best options for repayment, according to the testimony.

In student loan complaint documents provided to Capital News Service by the Maryland attorney general, borrowers brought up issues including miscalculation of public student loan forgiveness payments, servicers “harassing” them for payments they didn’t owe and illegally garnishing wages.

According to the Institute for College Access & Success, an independent, nonprofit organization, 56 percent of Maryland students graduate with an average of $29,314 in debt.

According to the Consumer Financial Protection, student loan debt in the country has increased to $1.5 trillion.

Frosh called the legislation a “Student Borrower Bill of Rights” that outlines what servicers can and cannot do. According to written testimony from his office, similar guidelines have been set or are under consideration in at least 15 states.

Seth Frotman, executive director of the Student Borrower Protection Center, called the legislation a “critical bill” that would benefit students who have been subjected to a “range of predatory practices.”

Frotman, who previously served as the student loan ombudsman for the Consumer Financial Protection Bureau, said he worked with students and servicers to handle repayment. He said most complaints were regarding individuals who received bad information from servicers and was systemic of a larger issue across the country.

The passage of this legislation comes in the middle of a tug-of-war between state attorneys general and the Trump administration. On April 5, Frosh joined a group of almost two dozen attorneys general requesting that Department of Education Secretary Betsy DeVos reverse the decision to keep student loan information from state law enforcement agencies.

“There is no legitimate reason for the Department of Education to halt student loan data sharing with state officials,” Frosh said in a news release. “The private companies contracted by the Department to service student loans are subject to state consumer protection laws, and the established practice of sharing certain student loan information helps states ensure these companies are complying with the law and borrowers are being treated fairly.”

This story was written by Daniel Oyefusi.


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Bill Would Provide Protections to Student Loan Borrowers