March 26, 2019
ICYMI: ACTING DFS SUPERINTENDENT LACEWELL'S OP-ED IN CRAIN’S NEW YORK BUSINESS: ALBANY’S CHANCE TO TACKLE THE STUDENT-DEBT CRISIS
Reforms in the governor's budget must be preserved by the Legislature
The Empire State and the nation are facing a crisis: More than 44 million Americans owe more than $1.5 trillion in student debt. Last year alone, more than 1 million borrowers defaulted on a student loan in the U.S. It's a pattern that repeats year after year.
In New York it's the same story. More than 2 million borrowers, including more than 530,000 in New York’s rural communities, owe more than $86 billion on student loans.
New York’s student debt crisis is most severe in neighborhoods with majority black and Hispanic populations. People of color, older people and first-generation students routinely fall through the cracks of our broken student loan system.
Struggling to manage unaffordable student debt means being subjected to the student loan industry’s servicers. These companies add insult to injury for New York student-loan borrowers by routinely losing paperwork, providing bad information and denying access to key protections that can save consumers thousands of dollars and keep them out of default.
These predatory practices are pervasive: In just over two years, more than a half-dozen federal and state agencies have taken enforcement actions against student loan companies to halt abuses at every stage of repayment. This includes an action New York’s Department of Financial Services took in partnership with the New York attorney general this year that barred former student-loan giant ACS from servicing loans in New York.
It didn’t have to be this way.
More than five years ago, state consumer protection officials began working with the federal government to halt industry abuses and build a student loan system that works for everyone. In 2014, Gov. Andrew Cuomo launched the nation’s first Student Protection Unit at DFS, providing direct assistance to thousands of New Yorkers with student debt. And in Washington, the Consumer Financial Protection Bureau, in partnership with the Education and Treasury Departments, worked to provide student-loan borrowers the same protections afforded consumers who have a mortgage or credit card.
Together, federal and state officials worked to expand oversight and to rein in the predatory student-loan companies that view borrowers’ struggles as a chance to make a quick buck. Together, we fought to ensure that student-loan servicers—the companies getting hundreds of millions of our taxpayer dollars—follow the law and do their jobs, which is to help millions of people get payment plans they can afford.
But Education Secretary Betsy DeVos and the Trump administration have rolled back progress at the federal level piece by piece, siding with powerful student-loan companies and walking away from the pressing need to protect borrowers. As a result, for more than two years the student loan industry has been free to trample borrowers’ rights.
As our leaders in Washington turn their backs on borrowers, Albany has an opportunity—and an obligation—to stand up for borrowers. Through his executive budget, Cuomo is advancing sweeping protections that authorize DFS to regulate all student loan servicers and subject all servicers to regular examinations by the department.
The legislation also includes a list of prohibited practices that was developed based on industry misconduct that DFS has identified which would provide the basis for enforcement action when servicers are found to have mistreated borrowers, including ensuring that no student loan servicers can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information, or any other practices that may harm borrowers.
By passing a budget that includes these provisions, New York lawmakers would tackle the student-debt crisis head on. It's time they did.
Linda Lacewell is the acting superintendent of the New York Department of Financial Services. Seth Frotman is the executive director of the nonprofit Student Borrower Protection Center and former student loan ombudsman for the Consumer Financial Protection Bureau.