'It's time to put a cop on the beat': Minnesota lawmakers push tougher regulations for student loan companies

Sasha Yunginger knew becoming a teacher wasn't going to make her rich, but she loved working with young people and felt a passion to put them on the right path.

Yunginger tried to keep costs down, attending a state school as an undergraduate and working her way through two degrees. But by the time she got her teacher's license in 2010, she was shocked to see her total debt was $90,000. Her minimum payment was $900 a month, and she would be making $32,000 a year. The company managing her loans said income-based repayment wasn't an option.

"I told them I can't afford that, I'm a first-year teacher," she said. "I don't make that kind of money."

Yunginger's struggle has become all too common, some state lawmakers say. More than 775,000 Minnesotans currently owe balances on their student loans. As the problem grows and federal efforts to protect borrowers stall, Minnesota is joining a growing number of states taking on the problem through the courts and legislatures. Lawmakers in St. Paul are currently weighing a range of proposals, including extending grants for debt counseling and launching a new state office to regulate the industry.

While the industry opposes state regulations, supporters argue that failing to act will have long-term consequences for the state's economy and workforce.

"As more college students borrow, this question becomes even more pressing," Sen. Melisa Franzen, D-Edina, said in a recent news conference. "It has a potential to impact every community that we represent."

Nationally, more than 44 million Americans owe a combined $1.5 trillion in student loans, with average balances for students graduating in 2018 nearing $30,000. Millions are in default or behind on their monthly payments. Industry critics say predatory practices by the loan servicing companies hired by the federal government to collect the debts have made things harder for people trying to pay back their loans.

Yunginger's case embodies those complaints.

Confused, overwhelmed and barely making ends meet as it was, Yunginger fell behind on her bills. Before long, the company started garnishing her wages to the tune of $1,000 a month. Ten years later, she owes $126,000. The weight of her debt has shaped her life in ways she never imagined.

"I can't buy a house. I can't have children," said Yunginger, now 39 and a special education teacher at Roosevelt High School in Minneapolis. "If I could have gotten something in place right away, I wouldn't be in this situation."

Some Minnesota lawmakers say the state needs to get more involved.

Franzen is the lead author of a Senate bill to create a state student loan advocate to oversee the companies that service the debt. The "debt czar," housed within the Department of Commerce, would have the power to investigate and resolve issues raised by borrowers. Supporters say a state advocate could help borrowers secure affordable payment plans before they go into default. As it stands now, 85,000 Minnesotans are delinquent on their loans.

"Minnesota's borrowers are being misled, confused and abused by student loan companies," said Democratic Rep. Zack Stephenson, lead author of the House version of the bill. "It's time to put a cop on the beat."

Some borrowers say the help is needed. Sarah Spleiss, a teacher in Coon Rapids, said she got mixed messages when she reached out to her loan servicer about signing up for an income-based repayment plan. A process that should have taken six weeks turned into six months. Thousands of dollars in interest piled on her outstanding balance.

"All I want is someone who can help us advocate for a better understanding of the process and to hold my loan servicer accountable for their mistakes," said Spleiss, who lives in Minneapolis.

Six states have enacted similar legislation, including Connecticut, which became the first to adopt a Student Loan Bill of Rights in 2015. Fourteen other states are considering bills now.

But efforts at the state level have faced broad industry opposition. Backed by the Trump administration, industry groups argue that the responsibility for regulating the industry should fall to the federal government. A memo released by the Student Loan Servicing Alliance warns that a "pattern of state-level legislation and regulation will create a confusing patchwork of policy for borrowers." Even officials with the state Office of Higher Education, which supports the idea of creating an advocate to serve as a resource for borrowers, acknowledges that state-level enforcement efforts can face challenges due to federal jurisdiction.

Supporters counter that state action is needed to compensate for the federal government's failure to act. Seth Frotman, a former federal student loan ombudsman under the Obama administration, said efforts to protect borrowers are now "playing a massive game of catch up."

"What we've seen over the last 18 months is a complete walking away by the entire federal government in terms of doing the work, [and] the industry really being allowed to prey on student loan borrowers," said Frotman, who founded the nonprofit Student Borrower Protection Center after resigning in protest over the Trump administration's approach on the issue. "The state oversight in this market is critical and has been a really important factor."

While Minnesota Democrats have pushed forward, the state advocate idea has yet to gain traction in the GOP-controlled Senate. Republican Sen. Paul T. Anderson, who chairs the chamber's higher education committee, said while has hasn't examined the proposal closely, he's wary of increasing government bureaucracy.

The Plymouth Republican said his priority is funding state programs already shown to help borrowers. That includes renewing a lapsed state grant for companies that provide student debt counseling. The Office of Higher Education says the program improved repayment rates and helped borrowers improve their credit scores during a two-year pilot.

"It really has had a lot of success," Anderson said, noting that missed payments can hurt borrowers' ability to get car and home loans. "For those students who need it, this is a great service."

Unlike the student loan advocate proposal, funding for the grant program has bipartisan support in the Legislature. Lawmakers in both parties also back continuing a number of state initiatives that provide debt relief for Minnesotans entering fields with worker shortages. A higher education budget plan in the Senate would increase loan forgiveness grants to teachers and public interest lawyers.

"These are folks that are coming out with law school debt and they are doing a service to the public," Anderson said. "It's something we can certainly support."

While any money helps, officials say those targeted programs benefit a very small number of Minnesotans. To meet growing need for aid, the Office of Higher Education is looking to expand its own refinancing program for student borrowers.

Leaders from both parties also caution that addressing the needs of current borrowers isn't enough. To make a long-term impact, they say the Legislature must find ways to keep the college costs down and ensure students have the ability and knowledge to manage their debt after they graduate.

"It's not a one or the other, it's an all," Higher Education Commissioner Dennis Olson said. "We need to continue to have affordability at the forefront of all of our decisionmaking."

For struggling borrowers like Yunginger, early intervention and financial education could have made a difference, she said. She eventually reached out to her teachers' union, which helped her start the process of consolidating her loans. Those steps should soon lower her monthly bill from $1,000 to $370. Knowing that with more information she could have paid off her loans by now — instead of 10 years from now — is hard. But she's just grateful to have a plan.

"It feels so good," she said. "Eventually, I can have the life I was hoping to have. It's just going to be later."