In the past several months, news has cycled from one student loan lawsuit to another. State attorneys general have filed suits against servicers, and there are even individual and class action lawsuits from consumers.
This past week, the Pennsylvania Higher Education Assistance Agency (PHEAA) filed a lawsuit against the Connecticut Banking Department. As part of this student loan lawsuit, PHEAA wants the court to declare that federal rules regulating student loan servicers supersede the more stringent regulations Connecticut is trying to enforce.
The effects of the ruling on this case might not be limited to Connecticut. It could set a precedent that influences the ability of individual states to set their own regulations and protect consumers.
Why is PHEAA filing a student loan lawsuit against Connecticut?
Connecticut, along with several other states, requires student loan servicers to get a license to collect payments from borrowers who live in the state.
However, PHEAA is balking at some of the paperwork Connecticut requires to obtain the proper licensing. The student loan servicer claims that turning over some of the information would violate federal privacy law. Some of that information, reported MarketWatch, includes data on the complaints consumers made about the servicer to the federal government.
With Connecticut threatening to revoke PHEAA’s license, the servicer is hoping to get clarification on the law through the courts.
“As a federal loan servicer, PHEAA seeks direction when conflicting regulatory guidance is issued by different federal and state regulators,” said PHEAA in a statement sent to the Washington Post.
Where does the Department of Education stand on this issue?
In March, the Department of Education issued its own guidance regarding state regulation of student loan borrowers.
“State regulation of the servicing of Direct Loans impedes uniquely federal interests,” said the filing. The filing also went on to insist that state regulations can make it difficult to uniformly administer the federal student loan program.
When PHEAA asked the Department of Education to release the requested data to Connecticut, the department rejected the petition, according to the Washington Post. Now, the Department of Education is suggesting that PHEAA ask the Connecticut Banking Department to submit a direct request for the documentation.
However, it isn’t clear whether the Department of Education would honor that request. The department’s own guidance is that federal rules supersede state regulation. Even Betsy DeVos has expressed her belief that state student loan laws shouldn’t be more restrictive than federal regulations.
It’s important to understand that the department’s recent notice isn’t legally binding, said Adam Minsky, a student loan lawyer.
“Right now, it’s just the department’s position that states shouldn’t be aggressively protecting consumers,” Minsky said. “They’ve made that clear. But a court case could change the nonbinding nature of the department’s guidance.”
How could this student loan lawsuit impact borrowers in the future?
Depending on how the case is decided, the effects could go beyond the state of Connecticut.
“The ruling in this case has the potential to affect how other states regulate student loan servicers,” said Minsky. “It would set a precedent that tells servicers that they don’t have to abide by state student loan laws.”
Minsky thinks that this could be problematic going forward because the Department of Education has been rolling back consumer protections since the beginning of President Donald Trump’s administration.
“The Department of Education is quite clearly and publicly siding with loan servicers over consumers,” said Minsky. “If the court rules against Connecticut, that would hinder the ability of states to regulate the private companies operating in their borders.”
Not only that, but it would also make it harder to hold servicers accountable for bad behavior.
“If states aren’t allowed to crack down, there would be little incentive for servicers to improve their offerings,” he said. “As the current administration continues to erode consumer protection, states have been the last line of defense. It would really put borrowers at a disadvantage.”
What can you do?
Without something in law, this question could be left up to the courts to decide. If you want to protect yourself, consider contacting your representatives in Congress and in your state legislature. By showing your support for strong consumer protections, it’s possible for you to put pressure on lawmakers to move forward and clarify this issue.
Currently, legislation that includes a student loan bill of rights is through the Senate. However, it still needs to pass the House and make it to the president’s desk before it becomes law.
In the meantime, contact your student loan servicer. If making payments is difficult, find out if you’re eligible for income-driven repayment plans. You can also look into student loan deferment and forbearance programs. That way, you can better manage your payments.
You can also consider refinancing your private loans to reduce your interest rate and payments, making your loans more manageable.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|