Like other highly regulated lending products, such as mortgages and credit cards, student lending operates within a unique compliance and regulatory environment. With student debt on the rise and outpacing many other forms of debt, it’s no surprise that lawmakers across the country are looking for ways to ensure that borrowers are protected from unscrupulous actors.
As a result, over the past few years, states have begun a movement towards increased legislation for the oversight of student loan servicers. While the hope is to better support private student loan borrowers, this effort has also resulted in a patchwork of student loan servicing laws that must be carefully monitored by lenders and servicers.
13 And Counting
To date, 12 states and the District of Columbia have enacted laws regarding student loan servicing, and at least 10 more bills have been introduced in various states. Laws already have been passed in California, Colorado, Connecticut, District of Columbia, Illinois, Maine, Maryland, New Jersey, Nevada, New York, Rhode Island, Virginia, and Washington. States with pending legislation include Arizona, California, Massachusetts, Minnesota, Missouri, North Carolina, New Mexico, Oregon, South Carolina, and Virginia.
The most challenging part about state laws surrounding a specific activity, such as student loan servicing, is that each state has its own scope, wording, and requirements. Some, but not all, states also have regulations that help clarify the law’s day-to-day implementation of the law.
To illustrate the varying scope of laws, Virginia’s law established an Office of the Qualified Education Loan Ombudsman whereas New York recently passed the New York’s Student Loan Servicing Act of 2019. Virginia’s law focuses on education of and advocacy for student loan borrowers, while laws like New York’s places new requirements on student loan servicers in terms of licensing, reporting, and other consumer-facing practices.
Borrowers On The Move
Even if a lender’s lending activities are focused within a specific state, it’s important to remember that any and all of these state laws can affect student loans made by that lender or any lender across the country. Unlike a mortgage loan where the property cannot leave the state, student loan borrowers are not tied to the state in which they lived or studied at the time they took out the loan. Borrowers frequently move, and with them so do the state student loan servicing requirements. Navigating and tracking these state laws from development and implementation is an important task for lenders and servicers.
Key Takeaways For Credit Unions
For credit unions who service their own private student loan portfolio, it’s important to remember that credit unions and banks are exempt from most of the laws that have been passed. These laws specifically pertain to student loan servicers. Accordingly, since most credit unions engaged in private student lending partner with external providers for assistance with loan origination and servicing, it’s important to verify that business partners are routinely monitoring state laws and implementing the necessary processes to ensure compliance.
Renee Buckner is the Vice President of Regulatory Control and Compliance for Credit Union Student Choice. Overseeing all regulatory and compliance issues for the CUSO, Renee leads the corporate compliance program and is entrenched in student lending regulations, fair lending laws, consumer protection laws, and legislation. Renee has over 20 years of experience in student lending leadership and compliance and holds an undergraduate degree from the University of Northern Iowa, an MBA from the University of Iowa, and is a Certified Regulatory Compliance Manager (CRCM) and NAFCU Certified Compliance Officer (NCCO).