06 Jan New York takes another stab at cracking down on student-loan companies
New York Governor Andrew Cuomo is proposing to crack down on student-loan companies after a similar effort from lawmakers in his state stalled last year.
As part of a package of proposals to coincide with his state of the state address delivered Wednesday, Cuomo unveiled a plan last week aimed at helping New Yorkers cope with their student debt.
• The proposal includes requiring student-loan servicers — or the companies that manage the payment process for borrowers — be licensed in the state and follow basic consumer protection standards.
• The governor’s plan will also appoint a student-loan ombudsman that borrowers can turn to if they’re struggling to work with their servicer and requires colleges to provide students with annual estimates of the debt they’re accruing.
New York Governor Andrew Cuomo’s office framed the student debt protections as another part of this broader effort to make college more affordable.
This latest move comes roughly a year after Cuomo announced the Excelsior Scholarship, which provides free tuition to some New Yorkers at public colleges. His office framed the student debt protections as another part of this broader effort to make college more affordable.
“Even if we make college completely free across the United States we’d still have $1.4 trillion in outstanding student-loan debt,” said Whitney Barkley-Denney, policy counsel at the Center for Responsible Lending, a consumer advocacy organization.
“Not everyone who is on the Excelsior Scholarship is going to have a debt-free education,” she added. The Excelsior program doesn’t cover living expenses, which can be a major cost for college students. “These other reforms recognize that and make sure that students are being dealt with fairly.”
Only three states have implemented laws that regulate student-loan servicers
So far, three states have implemented laws that regulate student-loan servicers and provide residents with an ombudsman, with a fourth on the way.
’This is very timely. It’s especially important now that Republican members on the Hill are coming to the defense of the industry.’
If a state as large as New York joins them, the move could push other states to jump into the fray as well and create a significant number of student-loan borrowers who are covered by state consumer protections, said Maggie Thompson, the executive director of Generation Progress, the youth-focused advocacy arm of the Center for American Progress, a left-leaning think tank.
Still, states could face challenges implementing these laws down the road. If passed, a bill proposed by House Republicans late last year would roll back state laws overseeing student-loan companies.
“This is very timely,” Thompson said. “It’s especially important now that Republican members on the Hill are coming to the defense of the industry.”
Borrower advocates support Cumo’s proposals to regulate student-loan companies
Given the history of New York’s attempts to regulate student-loan servicers, it’s hard to say how the governor’s proposal will fare. But borrower advocates are cheering his latest plan and are hopeful that his support will make the proposals a reality.
This enables New York to be a “real leader” in protecting student-loan borrowers, “which is needed more than ever given the erosion of protections at the federal level,” said Evan Denerstein, an attorney at Mobilization for Justice, an organization that provides legal aid to low-income and other disenfranchised clients.
Denerstein said he works regularly with student-loan borrowers who see their wages, Social Security and tax refunds garnished unnecessarily because their servicers don’t inform them of their rights.
Some legislators worry that student-loan companies are not being held accountable
Since 2015, lawmakers across the country have been taking steps to regulate student-loan companies in their states, an effort that’s gained new urgency as some legislators worry the Trump administration isn’t doing enough to hold student-loan companies accountable.
But in some cases, industry has thwarted the attempts by arguing that federal student-loan servicers, which are contractors of the federal government, aren’t subject to state oversight because the federal government’s requirements of the servicers supersede state rules.
Last year, Governor Cuomo included a provision requiring student-loan servicers to obtain a license in a preliminary version of his budget. That provision was ultimately removed from the final budget.
Last year, Governor Cuomo included a provision requiring student-loan servicers to obtain a license in a preliminary version of his budget. That provision was ultimately removed from the final budget and Democrats in the state house managed to pass a bill with similar requirements. But the bill ultimately died in the state Senate.
“I have to believe that it was lobbying by the industry,” Kenneth Zebrowski, the Democratic state assembly member who introduced the House version of this bill, said of the reason why the Senate never passed the bill. The Associated Press reported last year that companies spent thousands of dollars in multiple states, including New York, to lobby on the issue.
Can Cuomo turn these latest proposals to help borrowers into a reality?
But Zebrowski said he’s hopeful that the governor’s support will help turn the proposals into reality. “Last year, we passed the bill in the assembly, but we don’t have any ability to push the senate beyond mobilizing the public as much as we can,” he said. “Now that the governor has taken this on, it’s much more likely to get done and it will be much harder for the companies and businesses out there who actively try to thwart these consumer protection laws to be successful.”
‘Now that the governor has taken this on, it’s much more likely to get done and it will be much harder for the companies and businesses out there who actively try to thwart these consumer protection laws to be successful.’
Pam Shepherd, a spokeswoman for the National Council of Higher Education Resources, a student-loan servicing industry trade group, said her organization supports efforts to encourage truth in lending, but declined to comment on other provisions in the governor’s proposal.
If successful, the governor’s plan would go beyond the bill proposed last year, including by creating a student-loan ombudsman. That provision is important for borrowers because they often don’t know where to turn if they’re facing challenges dealing with their student-loan company, said Johnson Tyler, an attorney at Brooklyn Legal Services.
“Having a place that you can complain and have another person involved in the process, especially a government agency, makes a big difference for borrowers.” he said. Tyler said he’s seen companies respond more proactively to clients’ concerns when they bring them to outside agencies like the Consumer Financial Protection Bureau. The ombudsman may also call lawmakers’ attention to policy concerns through collecting and publishing complaint and other data, he said.