The burden of student debt is reshaping Minnesota’s demographics. When looking toward their futures, many see a sea of red ink that may steer them away from marriage, parenthood, home ownership and building up any kind of financial security.
What could be worse? Dealing with loan servicing agencies that lose their payments, make abrupt and unexplained changes, and send those seeking explanations into a labyrinth of bureaucratic misdirection plays. Such situations can leave those with student debt feeling helpless and hopeless, the House Higher Education Finance and Policy Division was told Wednesday.
But there could soon be “a cop on the beat.”
Housed in the Department of Commerce, the ombudsperson would help guide those with student loans through the labyrinth and bring the weight of the state down on lenders that deceive those with loans or withhold information from them, Stephenson said.
Division members approved the bill and referred it to the House Ways and Means Committee, which is expected to re-refer it to the House Jobs and Economic Development Finance Division. The companion, SF1484, is sponsored by Sen. Melissa Franzen (DFL-Edina) and awaits action by the Senate Commerce and Consumer Protection Finance and Policy Committee.
According to Washington, D.C.-based advocacy organization the Student Borrower Protection Center, Minnesota has 775,600 student loan borrowers with $27.1 billion in outstanding debt. The average amount of student debt in the state is $34,932, and 85,316 of those borrowers are in delinquency.
But three testifiers said that loan servicing companies are making matters worse with confusing, unexplained changes in restrictions and required payment amounts. Each was a Minnesota public school teacher who had particularly sharp words for the U.S. Department of Education’s Public Service Loan Forgiveness Program, which ostensibly allows borrowers who work for 10 years in government or nonprofits to have their debt forgiven.
But, Stephenson said, of the 29,000 people who have applied for forgiveness from the program, 98 percent have been rejected despite seemingly meeting its requirements.
“And, of those,” Stephenson said, “28 percent of the rejections had to do with filing errors. The other 70 percent were in the wrong payment plan or thought they had a job that fit the requirements, but didn’t.”
So this new ombudsperson would be responsible for making sure that such borrowers are where they’re supposed to be in that regard, conducting student loan education courses, and attempting to resolve complaints from borrowers.
The bill would also require licensure of student loan servicers and, if the ombudsperson finds one engaging in deceptive practices, they could use the power of the Department of Commerce to bar that servicer from doing business in the state.
“In many other states, attorneys general are bringing lawsuits against loan servicers,” Stephenson said. “But there isn’t a point person in our government right now for that, and that’s exactly what this bill is trying to get.”