Four million Californians owe nearly $ 150 billion in student loans, according to LendingTree.
These borrowers are now more eligible under a law that took effect this year and was recognized this month thanks to a new ombudsman’s office empowered to deal with complaints about student loan providers.
The law limits excessive late fees and loan providers will have to process payments on behalf of borrowers in accordance with the law.
Here’s what you need to know about what advocates call the Student Borrower Bill of Rights:
How did this law come about?
Lawyers have been calling for the law for years after reports of student loan providers using borrowers.
A 2015 report by the Federal Audit Office found that 70% of defaulted borrowers could cut their monthly loan payments by limiting them to a certain percentage of their income. But providers were unable to inform many of these borrowers about the opportunity to do so, the report said.
This finding and other practices such as non-payment of student loans to borrowers with permanent disabilities have led to California sued Naviente in 2018, one of the largest providers of student loans in the country.
Member of Parliament Mark Stone of Scotts Valley County introduced the law in 2019, citing a California lawsuit.
“California will continue to push for stronger consumer protection because we understand that student loans not only affect the lives of borrowers, but also have a negative impact on the entire economy,” Stone said in a statement when he introduced the law.
What will this law mean for borrowers?
The law requires service providers to act in the best interest of borrowers. This means that if you paid more than the loan was expected to pay, that overpayment should be directed towards reducing your principal and not interest on your next loan payment.
Providers should also minimize their fees.
For example, you might have four loans, each with a monthly repayment of $ 100, for a total of $ 400. You may decide to pay just $ 200 on time this month.
In the past, providers could spread $ 200 across your four loans, charging late fees on all of them. They now have to use that $ 200 to pay off two of your loans, which means that you are only charged late fees for the two that you didn’t pay off on time.
Providers should also advise you on how you can save on student loan payments. In the past, if you were going to default, service providers could nudge you into condescension, which often led to additional interest. The service providers must now tell you about other options, such as income-based payments.
With income-based repayment, “you can earn as little as $ 0 and still make progress on the repayment terms,” said Suzanne Martindale, senior deputy commissioner for consumer financial protection of the California Department of Financial Protection and Innovation.
The law limits penalties for late payments to 6% of any amount overdue. The limitation especially applies to those with private student loans, which often charged a flat late fee, no matter how much you owe, said Mike Pearce, co-founder and policy director of the Student Borrower Advocacy Center.
The law also requires service providers to have customer service professionals trained to assist populations such as veterans, elderly borrowers, people with disabilities, and those in the public service.
Employees should be able to inform these borrowers about the safeguards they have, such as the forgiveness of government service loans or the ability to repay loans, Martindale said.
The law applies to virtually all student loan providers with the exception of federal credit unions, Martindale said.
How can I take advantage of this law?
The law created an ombudsman office effective July 1 to deal with complaints about student loans.
According to Martindale, the state has not yet hired for the position. She hopes to gain a foothold in the position by the fall.
However, borrowers can still file complaints through DFPI. through your website (dfpi.ca.gov/file-a-complaint) or call 866-275-2677 or 916-327-7585. Borrowers can also ask questions by emailing Ask.DFPI@dfpi.ca.gov.
Keeping written records such as payment history and forms as well as being as specific as possible will help DFPI process your complaint, Martindale said.
Meanwhile, the law also allows borrowers to sue suppliers. You can go to the highest court in your district to find referrals for free or low-cost legal services. For Sacramento County, information can be found online at saccourt.ca.gov/…
According to Pierce, you are eligible to receive at least $ 500 for each violation, or at least $ 1,500 if it significantly affected your ability to repay the loan.
Stone introduced another bill, Assembly Act 424, aimed at private student loans. The bill, now in the Senate, will require the debt collector to document that borrowers do owe the money, said Chuck Bell, director of programs for Consumer Reports.
Collectors filed lawsuits against borrowers without proof that they owe money. Many of these borrowers are unable to hire lawyers and go to court, Bell said, which has resulted in debt collectors getting paid.