Coronavirus makes California’s ‘student borrower bill of rights’ essential

In the midst of a deep recession, with many out of work and many losing unemployment benefits, it is crucial that the California State Legislature enact Assembly Bill 376 to protect the millions in California who owe student loans.

More than 4 million Californians have taken out loans to pay for their education. Their student debt totals $147 billion. The Student Borrower Bill of Rights, AB 376, would not eliminate these financial obligations, but it would provide essential protection for many people who are paying back their student loan debts.

The law would require prompt processing of student loan payments and accurate postings of payments to borrower’s accounts. It would prohibit lenders from assessing excessive late fees, capping them at 6% of past-due balance.

It would prohibit abusive collection practices, adopting federal standards as part of California law and allowing the attorney general and the Department of Business Oversight broad power to enforce the statute. The law would also create special protections for vulnerable populations, such as military families, teachers and disabled borrowers.

In addition, AB 376 would create a new student borrower ombudsperson within the Department of Business Oversight to help those with student loans get answers to their questions and resolve disputes with lenders. Many other states have created such a position, including Colorado, Illinois, Maryland, Minnesota, Nevada, New York, Virginia and Washington.

These reforms are long overdue, but the enormous economic hardship that many are suffering because of the coronavirus pandemic makes them urgent. Inability to make loan payments has dire consequences: Borrowers risk going into default, which can include wage garnishment and limited access to additional aid. Meanwhile, the unpaid obligation keeps growing. Catching up on the amount in arrears becomes ever more difficult and student loan debt is generally not even dischargeable in bankruptcy.

There has been some student loan relief over the last six months, but it’s about to expire. Gov. Gavin Newsom’s April 23 executive order provided a 90-day relief period from interest and payments for those with private student loans with 21 private student loan servicers operating in California. This relief ended on July 23.

The federal CARES Act provided student borrowers six months of not having to pay interest and principle, retroactive to March 13. But this relief will end September 30 and borrowers already have begun receiving notices that repayment obligations will resume. Moreover, millions of student borrowers with commercially-held student loans did not qualify for relief under the CARES Act.

President Trump announced last week that he was signing an executive order to extend the relief on student loans owed to the federal government until December 31. It’s unclear, however, whether he has the constitutional authority to do this. And his order provides no relief on debts owed to any other lender. Nor does it provide the slightest protection against abusive collection practices.

Overall, the Trump administration is very much on the side of the lenders and not inclined to regulate them. Education Secretary Betsy DeVos, the Consumer Financial Protection Board, and the Trump Administration have been no help in providing protections against abusive practices. They have backed the student loan servicers against students every time.

In 2016, California enacted the Student Loan Servicing Act, AB 2251. This bill created a regulatory licensure program within the Department of Business Oversight and

gave it the ability to oversee companies that service student loans in California. But the law adopted before the pandemic did not go far enough in protecting those with student debt from abusive collection practices.

Millions of Californians are suffering greatly because of the coronavirus recession and it may soon get worse. Unemployment insurance is about to end, as is mortgage and rent relief. The common sense and basic protections of AB 376 are essential.

This story was originally published August 18, 2020 at 12:00 AM with the headline "Coronavirus makes California’s ‘student borrower bill of rights’ essential."