Even though most states have done little to improve access to healthcare, it is ok for states to regulate ACA and Medicaid as states are supposedly closer to their constituent’s needs. If the Federal government steps in and tries to regulate voting registration requiring ID, planned parenthood, ACA, etc. because certain state(s) give a damn about discrimination, children, and human rights; then, it is a supposed violation of state rights. For once, states have gone the other way. Student loan regulation of servicers has worsened in the last two decades under the Federal Government, states have taken notice and stepped in voluntarily to rein in the abuses of the student loan servicers.
It is a well-known and voiced complaint amongst student borrowers; the loan servicers are difficult to deal with, the regulators over bearing as borrowers have no recourse with them or in court, the laws and procedures are not accurately told, and any penalties assessed for delinquency or recasting loans in default are usurious. Deciding enough is enough with the Federal Government, legislators doing little to remedy the issue, and servicers being abusive; some states have taken action.
Recounting his experience and interaction with a student loan servicer’s staff, one state’s General Council had this to say:
“The situation is so challenging that even a state banking regulator (financial attorney) struggled to figure it out. Bruce Adams, the general counsel for Connecticut’s department of banking, recounted his exasperation in dealing with a servicer when discussing his wife’s student loans in a recent interview. After multiple calls to the company where he heard different answers to the same question, Bruce Adams (43 years of age) had finally had enough.”
Bruce Adams: “I expressed my frustration and said I am a financial lawyer and I understand the words that you’re using. I don’t understand what you’re telling and if it does not make sense to me, how is it going to make sense to anyone who is not in this field?”
In a Connecticut legislative hearing to address the challenges facing student loan borrowers, Bruce Adams told his version of what took place during his conversation with a student loan servicer. The story was convincing enough to Democrat and State Representative Matt Lesser for him to spearhead legislation. That conversation with a few other Connecticut state legislators and Matt Lesser actions led to the first state sponsored Student Loan Bill of Rights in the nation.
Why is this so important? According to the agency Trump placed under the direction of Mick Mulvaney, the CFPB stated:
Former CFPB Director Richard Cordray: “One out of four student loan borrowers are struggling to repay their loans or are already in default, cleaning up the servicing market is critical, today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”
If you think this will happen under Mick Mulvaney, then you probably thought the Republican Tax Bill will skew much of the relief to middle and lower income taxpayers too.
It has been two years since Market Watch’s Jillian Berman wrote about Connecticut’s Student Loan Bill of Rights. Since then Betsy DeVos is heading up the Department of Education and advocating for less regulation of student loans, pushing for privatization of public education, and favoring Charter Schools regardless of quality. Since Jillian’s article, I am confident the student loan dynamics have edged closer to the 1 in 4 being in default as also claimed by Alan Collinge of the Student Loan Justice Organization.
So, what is happening today?
Jillian and Market Watch points us to recent state activities in loans for education. Other states have started to or put in place similar bill of rights to protect student borrowers. Then President Obama placed additional restrictions on nonprofit and for-profit schools. However in 2017, the dynamics changed with the election of Trump to the presidency as he, McConnell, Ryan, and Republicans are attempting to rollback or change Obama’s accomplishments threatening the nation’s younger citizens with becoming indentured more so than previously to the servicer and loan industry.
The House Education and Workforce Committee leadership released a Republican sponsored 540 page bill called PROSPER or “Promoting Real Opportunity, Success, and Prosperity through Education Reform,” HR4508. It is the House proposal reauthorizing the Higher Education Act and contains a plethora of promises to the financial industry and limits Federal and State Government’s intervention in regulating colleges, student loans, and repaying student loans.
Republicans have been big on limiting Federal regulation of States under the guise of states rights. Progressive states have moved to provide protections for the welfare of students borrowing money for college and conservative states have moved in the opposite direction to lessen their protection. Republican US Representative Virginia Foxx bill’s intentionally eliminates any state intervention.
Tucked away deep inside the bill on page 464 of 540 pages is the wording doing so;
PROSPER, line 10: (d) FEDERAL PREEMPTION, the Republican bill reverses the trend of state regulation.
Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act: HR 4508: Sponsors: US Representative Virginia Foxx NC (R) and US Representative Brett Guthrie KY (R)
To support students in completing an affordable postsecondary education that will prepare them to enter the workforce with the skills they need for lifelong success.
“(d) FEDERAL PREEMPTION.
“(1) DISCLOSURE AND COMMUNICATIONS.—An entity awarded a contract under this section for the origination, servicing, and collection of loans made under this title shall not be subject to any law or other requirement of any State or political subdivision of a State with respect to :
“(A) disclosure requirements; or
“(B) requirements or restrictions on the time, quantity, or frequency of communications with borrowers, endorsers, or references with respect to such loans.
“(2) SERVICING AND COLLECTION.—The requirements of this section with respect to the serving or collection of loans shall preempt any law or other requirement of a State or political subdivision of a State to the extent that such law or other requirement would, in the absence of this subsection, apply to a loan servicer, or the servicing or collection, of a loan made under this title.
“(3) LIMITATION.—This subsection shall not have any legal effect on any other preemption provision under Federal law with respect to this title.”
The House bill effectively eliminates any and all regulation by states existing today, going forward, and including Connecticut’s Bill of Students (to be redundant). It appears, Republicans do not believe in state rights when it comes to the regulation of student loans, private servicers, loan repayment, collection of student loan debt, and the lending institutions making these loans.
Some Issues with PROSPER HR4508:
The bill also limits the Federal government regulation of nonprofit and for-profit colleges and universities.
The bill increases the limits of federal loans made for education; but, colleges can limit the federal loan amount and potentially force students to go to the private lending institutions if they do not have enough fundings from college loans. A difficulty also arises in consolidating private and Federal loans as it can not be done. Another potential problem with colleges administering loans surfaced 10 years ago when some colleges had favorite servicers/banks and directed loans to them. Colleges were given favorable pricing, kickbacks, or gifts if they used particular lending institutions such as JP Morgan Chase, Citibank, Bank of America, Wachovia, Wells Fargo, National City, Sallie Mae, CIT/Student Loan Xpress, etc.
Loan interest rate caps for these loans will also increase.
Undergrad student loans are capped at 8.25% or 10-year Treasury Rates + 2.05%; Graduate Students and Professional student loans are capped at 9.5% or 10-year Treasury Rates + 3.6%; and Parent One Loans are capped at 10.5% or Treasury Rates + 4.6%. My argument against such high rates has revolved around the need for a highly educated work force and more graduate and doctorate graduates to do the required doctoring, research and development, and teaching. Instead of increasing interest rates and eliminating deductions for interest, the nation should be reducing the cost of going to college by lowering interest rates to cover cost alone. 3% maximum sticks in my mind.
The length of a loan repayment is limited unless approved for an IBR plan (IBR plans have been difficult to administer with 1 in 4 students dropping out of them and eventually going into delinquency.)
The length of the payment plan shall be no more than 120 months or 10 years unless an Income Based Repayment Plan is offered. Under PROSPER, the IBR 20-25-year limit still exists but the loan forgiveness is eliminated. Today and with the IBR, loan forgiveness can be achieved after 20-25 years. The payments under PROSPER are also higher and a student borrower can be making payments till the grave.
For-Profit colleges no longer have to put their own funding up and can use taxpayer money as a basis to be in business or have “skin in the game”.
The elimination of the 90/10 rule which required for-profit institutions to put up 10% of their own funds up besides federal funds for loans. Taxpayers are funding for-profit school lending again with 100% funding using taxpayer funding. Taxpayers are funding loan companies.
Students are penalized if a loan goes into default and reactivated. These loans are profitable in default and more so.
Reactivation of a student loan today with a private server comes with a rate as high as 16%. This happens with a loan which can not be discharged through bankruptcy or disability unless 100% disabled (including military) as called out in the House bill. As Alan Collinge has stated; “More profit is made on student loans in default than in repayment.”
US Representative Virginia Foxx’s HR4508:
Ben Miller of the Center for American Progress: “We see a decimation of key consumer protections for students. The ‘business of higher education over students’ is just one of the themes that emerged from the more than 540-page bill.”
It is hard to get to something worse than today’s IBR and Repaye plans plus student loans without Bankruptcy protection something our Twitterer-in-Chief enjoyed 6 or 7 times; but, it appears the Republican PROSPER bill put forth by US Representatives Virginia Foxx, Brett Guthrie, and Republicans has established a new level of debasement of students and indenturing them for life to student loans.
My own Opinion?
I have helped my sons and daughter with their loans, being adamant in what would be acceptable and as well advise other potential college students. All student loans should never have exceeded 3% interest annually to encourage more to go to college. Low interest rate loans promote the nation’s investment in their citizens and give graduates the ability to start life less hindered than what they are today. As one older University of Michigan lobbyist who wanted to have a discussion with me concerning my statement to Senator Stabenow on student loans and the IBR programs, the attitude was “I got mine” and today’s students should get over it and live with it. My answer is; “the ability to gain an education should not hinder those who are seeking education with high interest rates and usury penalties administered by commercial interests. It is beneficial for the country to cause graduates to become as productive as possible as soon as possible. Neither should any person be indentured to the nation financially.” The dynamics have changed over the years.
One State’s Effort to Tackle the Student Debt Crisis Jillian Berman, Market Watch. January 10, 2016.
House Republicans Seek to Roll Back State Laws Protecting Student Loan Borrowers Jillian Berman, Market Watch, December 2017.
HR4058 PROSPER Bill as introduced Sec 493E It is easier to do a search for Federal Preemption.
CFPB Student Loan Servicing September 2015