PROVIDENCE, R.I. (WPRI) — General Treasurer Seth Magaziner and Attorney General Peter Neronha introduced legislation for a “student loan bill of rights” on Thursday, aimed at protecting borrowers from “predatory” lending practices.
The bill would require loan servicing companies to register with the state and be scrutinized by regulators. The companies would have to follow certain guidelines, including informing lenders of all their repayment options.
According to the treasurer’s office, more than 133,000 Rhode Islanders have a combined $4.5 billion in student loan debt. It includes thousands of senior citizens.
“Student loan servicing companies that are supposed to help people make their payments and keep up with their loans, all too often are giving people the wrong information, misleading information, are processing payment incorrectly,” Magaziner said at a news conference about the bill on Thursday.
Kara Humm, a student loan borrower who works as a public defender, also spoke at the news conference. She said she planned to use the federal public service loan forgiveness program, which allows student debt to be forgiven after the borrower works ten years in a public service job and makes 120 qualifying payments.
Humm said she was meticulous about making the payments, yet ended up in a dispute with the private loan servicing company, which kept lowering the number of “qualifying payments” it determined she had made.
When she reached the ten year mark and applied for loan forgiveness, she said she was denied because of her ongoing appeal with the loan service company. She was told it could take up to two years to approve her loan forgiveness, and in the meantime she should keep making payments.
“I feel helpless,” Humm said. “I feel as though it’s hard to get any answers, and the answers I do get are certainly inconsistent. I’ve done what I was told, I fulfilled my obligatation and I expected this loan to be forgiven.”
Magaziner said lenders often aren’t told about income-based repayment programs and other ways they can get out of debt faster and accrue less interest.
The legislation would require the loan providers to pay a $1,000 fee to register with the state, which the treasurer’s office says will help the program pay for itself.
“People’s lives are being ruined by these poor loan servicing practices,” Magaziner said.
The head of the Student Loan Servicing Alliance said Thursday the group wants to “work with states” on legislation to regulate the industry across the country.
“While the US District Court in DC has ruled that state licensing of the federal government’s contractors – similar to what is proposed in RI legislation – is not permissible under the law, we certainly want to work with states on how we can better educate all borrowers on their options since there is a lot we can work together to do,” executive director Scott Buchanan said.
A spokesperson for Navient, identified by Magaziner as one of the larger loan servicers whose practices could improve, declined to comment until they could review the legislation.
