ST. PAUL — Minnesota lawmakers this week said they want to place in law tougher penalties to prevent student loan servicers from ripping off borrowers.
Rep. Zack Stephenson, R-Coon Rapids, and Sen. Zach Duckworth, R-Lakeville, on Monday, Feb. 22, put up a plan to require that student loan servicers get licensed through the state. The servicers would face civil penalties and having their license revoked if they mislead borrowers or misrepresented their services.
The pair said their so-called "Student Borrowers Bill of Rights" could add additional teeth in state law to deter companies from entering into loan agreements with Minnesotans then shifting the stakes on them without their approval. In Minnesota, roughly 775,000 residents hold student loan debt. And combined, the loans total $27 billion.
Under the proposal, servicers would have to apply for a license through the Department of Commerce and they would be prohibited from misleading borrowers, misrepresenting their services or improperly applying loan payments as terms of remaining in good standing with the state. It doesn't outline a clear recourse for the borrower.
"Minnesota law is stunningly inadequate at protecting student borrowers from even the most basic bad behavior from the private companies that service their debt," Stephenson said. "If the borrower makes the slightest misstep, they can watch their debt balloon out of control and see themselves suddenly become ineligible for forgiveness programs that they may have planned their entire education around."
That's what happened to Destiny Belmont, a Benton-Stearns Education District school psychologist. Belmont took out about $50,000 in loans to help pay for graduate school at Minnesota State University Moorhead. Her loan servicers then shifted her policies without telling her and complicated her efforts to have her debts forgiven by the federal government after nearly a decade of repaying them.
“Loan servicers are taking advantage of Minnesotans, many who — like myself — are going into education, health care and other public services,” Belmont said. “It’s time to regulate loan servicers and represent the interest of borrowers, not corporations.”
The bill was set to come up for its first committee hearing on Tuesday. Both the Senate and the House of Representatives will have to approve the plan before it could go to Gov. Tim Walz's desk for his signature.
Stephenson and Duckworth said they were confident that the measure could win support from both sides of the political aisle at the Capitol.
“Slowly but surely, hopefully, we can have a more long-lasting impact on this process," Duckworth said. "I think this is a great place to start."