Minnesota lawmakers propose 'bill of rights' for student borrowers, licensing requirement for loan providers

Seeking to address a student debt crisis totaling nearly $2 trillion nationally, a bipartisan pair of Minnesota lawmakers want to enshrine protections for borrowers into state law.

Rep. Zack Stephenson, DFL-Coon Rapids, and Sen. Zach Duckworth, R-Lakeville, unveiled a "Student Borrowers Bill of Rights" on Monday that would require student loan servicers operating in Minnesota to be licensed through the Department of Commerce. The measure would give the commerce commissioner power to suspend or revoke the licenses of servicers that mislead borrowers or misrepresent payments.

"There's a confusing labyrinth of repayment plans, forbearance options, refinancing opportunities," Stephenson said. "If a borrower makes even 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."

Destiny Belmont, a school psychologist in the St. Cloud-area Benton-Stearns Education District, experienced just that. She finished graduate school in 2008 with about $51,000 in student debt. For the next 10 years, she said, her loan provider cycled her through different payment plans without her knowing it.

Because of the frequent shuffling, Belmont was told she did not qualify for the federal public service loan forgiveness program, which offers relief to public and nonprofit workers who have made 120 monthly student loan payments under a "qualifying" repayment plan.

"They told me I wasn't on the correct payment plan and I've only made 21 qualifying payments," Belmont said. "I felt defeated."

She eventually got in touch with a group that helped her navigate the federal program, and in August she was granted full forgiveness. About $49,500 of her loans was forgiven, she said, even though she paid $36,500 over 12 years. The payments she made for more than a decade barely made a dent in the original balance because of high interest.

"This isn't right. Loan servicers are taking advantage of Minnesotans," she said.

Some 775,000 Minnesotans owe student loan debt totaling about $27 billion. Nationally, American student loan debt hit $1.7 trillion in the third quarter of 2020, according to the Federal Reserve.

The debate over how to tackle the mounting student debt crisis has intensified since President Joe Biden took office, with students, advocates and some top Democratic senators calling on Biden to cancel as much as $50,000 in debt per borrower.

The proposed bill of rights for Minnesota borrowers would not wipe away balances, but the lawmakers pushing it say it would put in place much-needed protections.

The legislation would prohibit loan servicers from knowingly misapplying payments, misrepresenting the amount or terms of payments, and providing incorrect information about loan forgiveness, among other things.

Servicers would face civil penalties and could have their licenses revoked if they're found to have acted deceptively or fraudulently.

Loan providers would also be required to consider income-driven repayment before placing a borrower in forbearance or default.

However, the measure doesn't offer a clear recourse for borrowers who have been negatively affected.

"The whole purpose of that piece is preventing it … from even happening in the first place," Duckworth said. "We're not going to solve it overnight with one piece of legislation, but what we can do is begin to chip away at it."

Ryan Faircloth • 612-673-4234

Twitter: @ryanfaircloth