While the overwhelming majority of student loans originate from the federal government, they are almost all serviced by private companies.
These repayment programs can be complex, and contain a “confusing labyrinth of repayment plans, forbearance options and refinance opportunities,” said Rep. Zack Stephenson (DFL-Coon Rapids).
He sponsors HF1493 that would require student loan servicers to be licensed by the Department of Commerce and follow certain procedures relating to the servicing of loans.
The bill was approved 14-4 by the House Higher Education Finance and Policy Committee Tuesday; it now heads to the House Judiciary Finance and Civil Law Committee. Currently, there is not a Senate companion.
“Minnesota law is stunningly inadequate at protecting student borrowers from even the most basic bad behavior by the private companies that service their debt, and that’s why I’m bringing forward this bill,” Stephenson said.
In addition to detailing licensure requirements, the bill outlines misconduct, and would permit the department to examine student loan servicers, revoke licenses, and issue civil penalties. These are measures supported by Sarah Spleiss, an English teacher in the Anoka-Hennepin School District.
Spleiss detailed the plethora of challenges she faced navigating the student loan repayment system, as her loans were split among servicers and she struggled to maintain eligibility for the federal Public Service Loan Forgiveness Program.
“It is to their benefit to not help us make sure we are following the proper procedures,” she said.
Rep. Jon Koznick (R-Lakeville) suggested the proposal include a component that would ensure students receive loan and career counseling on the front end to gain knowledge about the student loan system and the impacts of various career choices.
“If you’re going to take on a $100,000 debt to get a particular degree that you’re just enthralled with, but there’s no demand for jobs to ever repay that loan, those financial challenges I’m not sure can be blamed on the servicer or whoever the lender is,” he said.