Student Loan Servicing

What is a student loan servicer, anyway?

A student loan servicer’s job is to act as the liaison between a student and a financial institution that makes a student loan. Their responsibilities include collecting and processing payments, offering advice for borrowers about payment plans, and generally help a student keep their loans in good standing. According to the U.S. Department of Education’s Federal Student Aid Office, a student loan servicer provides the customer service aspect of the loan repayment process, handling “the billing and other services,” and assisting “[borrowers] with other tasks related to [their] federal student loan.”

THE PROBLEM

As the student debt burden surpasses $1.4 trillion, more than 44 million student loan borrowers look to their student loan servicers to help them navigate the road to repayment. Unfortunately, these servicers have a poor track record of assisting students and have routinely taken advantage of the nearly opaque student loan arena to act as predatory debt collectors, instead of customer service guides. Currently, the Consumer Financial Protection Bureau’s (CFPB) complaint database hosts approximately 718 complaints related to student loan servicing from Maryland borrowers.

These servicers are committing many of the same offenses that the mortgage servicing industry participated in leading up to the financial crisis. As more federal student protections are rolled back, Maryland has a unique opportunity to reinstate vital protections for borrowers in our state.

the solution

Over the past few years, states from around the country have passed a Student Borrower Bill of Rights. This legislation ensures transparency and accountability in the student loan servicing industry by licensing these businesses as debt collectors. Licensing imposes more robust consumer protections that gives borrowers the ability to determine where payments are applied, to end harassing behavior from servicers, and more.

In 2019, the Maryland Consumer Rights Coalition teamed up with the Maryland Attorney General’s Office, the Center for Responsible Lending, and the Student Borrower Protection Center to pass legislation to create a list of prohibited behaviors for student loan servicers. This was a great step in the right direction, but there is more work to be done. In 2020, we plan to complete the legislation by developing licensing requirements for all servicers operating in our state.