On Thursday, council member Brianne Nadeau (D-Ward 1), chairwoman of the subcommittee on consumer affairs, scheduled a markup for legislation that would make the District the latest jurisdiction to join that movement.
The proposal by D.C. Council member David Grosso (I-At Large) is modeled after similar laws in California and Connecticut. It would establish a student loan ombudsman within the Department of Insurance, Securities and Banking to regulate education loan servicers doing business in the District. That ombudsman would field complaints, educate residents about repayment options and monitor servicers to make sure they’re in compliance with federal laws.
Servicers would have to obtain a license, which the ombudsman could revoke, deny or suspend, according to the bill. The student loan point person, whom the mayor would appoint to a five-year term, would have the right to investigate servicers and refer cases to the city’s attorney general.
“Through requiring these servicers to become licensed to operate in our city, we will weed out bad actors, ensuring that our students are not imperiled by predatory practices leading to further indebtedness,” Grosso said at the hearing Thursday.
Dana Sheppard, deputy commissioner of the Department of Insurance, said the agency supports the legislation but sees no need to install an ombudsman because the existing staff is capable of handling all of the tasks outlined in the bill. Grosso argued in support of having a point person to lead the effort but agreed to hash out the details with Sheppard’s office.
The deputy commissioner estimates that the legislation would affect at least 20 student loan servicers, though Christopher Hicks of the American Federation of Teachers told the council that the numbers could be higher. He found complaints filed by District residents against more than 34 servicing companies in the Consumer Financial Protection Bureau’s database.
Hicks said the Washington Teachers’ Union held a student loan workshop this week, where members discussed the difficulties they faced managing their student loans. The complaints were consistent with those in a recent AFT survey in which members complained of receiving conflicting, inconsistent and inaccurate information from their servicers.
“Our members, who are among some of the most highly educated consumers in the United States, struggle to repay their student debt not only because they can’t afford it, but because their student loan servicers make the process so difficult for them,” Hicks said.
There were no servicing companies represented at Thursday’s hearing. Servicing organizations have fought state campaigns for greater oversight of their industry, arguing that lawmakers are missing the bigger picture by focusing on licensing servicers. Simplifying repayment plans and counseling students before they borrow, they argue, would be worthier goals. Yet the Student Loan Servicing Alliance said it welcomes the District’s efforts to help residents.
“We share a common goal with the D.C. Council of ensuring borrowers are successfully managing their student loan debt,” said Winfield P. Crigler, executive director of the Student Loan Servicing Alliance. “We need to ensure there is synergy between any local efforts and the federal rules.”
Critics of the loan servicing system say poor communication and mismanagement of borrower accounts warrant further action. Seth Frotman, the student loan ombudsman at the CFPB, testified that the bureau has received tens of thousands of complaints about servicers losing paperwork, processing payments too slowly, sending inaccurate billing or failing to enroll people in affordable payment plans.
“There are breakdowns at nearly every facet of the borrowing lifecycle,” Frotman said at the hearing. “Increased oversight is critical, especially because these breakdowns can drive up the cost of the loan.”
Grosso’s bill has the backing of at least 10 of the 13 members of the council, giving it a good chance of advancing to the full council. Mayor Muriel E. Bowser’s office said she recognizes the need for additional protections in the area of student loan servicing and is supportive of the intent of the legislation.
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