A bill has been introduced in the Senate to create a student loan borrower bill of rights, which would limit the circumstances in which late fees can be applied, prohibit the use of mandatory arbitration provisions, and force servicers to create units that are dedicated to keeping at-risk borrowers from defaulting, among other requirements.
The Details: The bill was introduced yesterday by Sen. Dick Durbin [D-Ill.] and is co-sponsored by Sen. Tammy Duckworth [D-Ill.], Sen. Amy Klobuchar [D-Minn.], Sen. Jack Reed [D-R.I.], Sen. Peter Welch [D-Vt.], and Sen. Tina Smith [D-Minn.].
Among the provisions of the bill, which has been endorsed by the National Consumer Law Center, the Student Borrower Protection Center, and Americans for Financial Reform among other advocacy groups, are:
- Improves disclosures and outreach to borrowers when their loan is sold or transferred, the borrower is identified as at-risk of default or having trouble making payments, or the borrower is eligible for alternative repayment options or other benefits;
- Standardizes the application and the allocation of payments among multiple loans in a manner most beneficial to the borrower;
- Creates a Student Loan Servicing Interagency Working Group to provide recommendations related to servicing contracts;
- Removes a borrower’s record of default from their credit history when they act to rectify their defaulted loan;
- Limits circumstances in which borrowers are subject to late fees and other negative consequences;
Improves timely resolution of errors made by servicers; - Prohibits servicers from using mandatory arbitration clauses or class action restrictions to prevent borrowers from bringing suit against the servicer in a court of law;
- Requires servicers to establish Repayment Specialists, which are specially trained units focused on keeping at-risk borrowers from defaulting, without pushing them into forbearance, and getting them back on track to repayment;
- Improves private loan protections, including ensuring private student loans are discharged upon death or disability of the borrower;
- Requires institutions of higher education to certify private student loans prior to a borrower taking out a private loan to ensure that federal loan eligibility is exhausted; and
- Codifies the authority of the Consumer Financial Protection Bureau Student Loan Ombudsman.
The Last Word: “Student loan debt is a crushing weight on the backs of American students and families, and repaying student loans can be a difficult and confusing process,” Sen. Durbin said in a statement. “The Student Loan Borrower Bill of Rights Act sets out basic rights that I believe all student borrowers are entitled to, and that can protect them from falling behind in payments.”
