New Jersey enacted a so-called student loan bill of rights meant to apply heavier regulations to companies that service student loans, such as Navient and FedLoan.
Proponents of the measure argue it will help clamp down on the ballooning student debt experienced by roughly one million New Jersey residents—by some accounts upward of $44 billion.
Under Senate Bill 1149, the state’s Department of Banking and Insurance (DOBI) will have the authority to enforce state standards against companies that manage and collect student loans, and DOBI will be able to leverage fines against companies which violate state laws.
S1149 will also create a student loan ombudsman position to help students navigate the often complex, confusing and daunting landscape of how to settle questions and resolve issues with student loans.
This bill will help make sure borrowers can get actionable, reliable information about their loans and repayment options.
– Chuck Bell, programs director, Consumer Reports
Advocates say the measure will help stymie abusive practices by student loan services, such as ones that increase the profits of companies at the expense of students, according to Yasmin Farahi, policy counsel at the Center for Responsible Lending.
“This bill will help make sure borrowers can get actionable, reliable information about their loans and repayment options,” Chuck Bell, programs director at Consumer Reports, said in a statement. “In addition, it creates strong rules of the road to ensure student loan services do not mislead borrowers, misapply payments, or provide credit reporting agencies with inaccurate information,” Bell added.
Students can reach out to the ombudsperson for questions ranging from navigating mundane paperwork, to figuring out how to stave off an imminent risk of loan default. The ombudsperson will handle complaints made about servicers.
“With the creation of the Office of Student Loan Ombudsman, we will provide essential resources for student loan borrowers to understand their rights and responsibilities,” reads a Tuesday statement from the Assembly Democrats Office.
The statement continues: “The core functions of the office will be to mediate grievances, address concerns, provide education about student loan processes, and monitor implementation of student loan policies.”
Servicers will have to be licensed through DOBI, but that provision will not extend to state and federally chartered banks, credit unions, savings banks, or savings and loan associations.
Violators would be slapped with a $10,000 fine for a first offense and $20,000 for any time after that.
Loan servicers will have to consider a borrower’s “eligibility for an income-driven repayment program prior to placing a borrower in forbearance or default, if an income-driven repayment option is available to the borrower,” according to the text of the bill.
Additionally, services will have to apply “partial payments in a manner that minimizes late fees and negative credit reporting,” the bill adds.