A new law went into effect last week requiring anyone servicing student loans in Massachusetts to be licensed, and the definition of student loans as well as the types of companies required to be licensed are broader than one might expect.
Under the law, which was enacted earlier this year, student loans are defined as any loan that is primarily used to finance an individual’s post-secondary education or for other school-related expenses, which includes both private and federal student loans. As well, a student loan servicer is defined as “a person responsible for servicing a student loan to a student loan borrower.” This includes:
- receiving or soliciting a scheduled periodic payment from a borrower pursuant to the terms of a student loan and making the principal, interest and other payments to the owner of the loan or other third party with respect to the amounts received from the borrower as may be required pursuant to the terms of the servicing loan document or servicing contract;
- maintaining account records for a loan and communicating with the borrower regarding the loan on behalf of the owner of the loan during a period in which no payment is required on the loan; or
- interacting with a borrower, including activities to help prevent default on obligations arising from a loan, to facilitate the activities described in clause (i) or clause (ii); provided, however, that the actions of the student loan ombudsman under section 35 of chapter 12 and the actions of the division of banks consumer assistance unit under section 3A of chapter 26 shall not constitute servicing.
A copy of the licensing application is available by clicking here.
Under the law, the state’s Attorney General has also announced the hiring of a Student Loan Ombudsman — Arwen Thomas, the Deputy Director of the AG’s Insurance and Financial Institutions Division. The Ombudsman is responsible for resolving complaints from students, monitoring student loan servicers, and educating borrowers.
Under the new law, entities that are licensed as student loan servicers will not be required to be licensed by the Massachusetts Division of Banks as a debt collector.
