OAG Testimony on New Student Loan Borrower Bill of Rights Act of 2021

Statement of Laura C. Beckerman, Assistant Attorney General, Office of Attorney General for the District of Columbia
Before the Committee on Business and Economic Development Councilmember, Kenyan R. McDuffie, Chairperson And Committee on the Judiciary and Public Safety Councilmember Charles Allen, Chairperson


Good morning Chairpersons McDuffie and Allen, Councilmembers, staff, and residents of the District. My name is Laura Beckerman, and I have the privilege of serving as an Assistant Attorney General in the Office of the Attorney General for the District of Columbia’s Office of Consumer Protection. I am pleased to provide comment on behalf of Attorney General Karl Racine and express the Office of the Attorney General’s strong support of the New Student Loan Borrower Bill of Rights Amendment Act of 2021 (“2021 Borrower Bill of Rights”).

District Residents Shoulder High Student Loan Burden

Even before the pandemic, we were in the midst of a student debt crisis. This was true nationally as well as here in the District, where student debt is increasing. From 2008 to 2018, the percentage of District residents over age 25 with student loan debt increased from 19 percent to 23 percent, seven percentage points higher than the United States overall. DC residents have some of the highest student loan debt in the country, shouldering a median debt of over $30,000, nearly ten thousand dollars more than the U.S. average. District residents also increasingly struggle with delinquent student debt. In 2018, 16 percent of District borrowers had student debt more than 90 days past due.

The burden of student loan debt falls disproportionately on low-income communities and communities of color in the District. Indeed, six of the eight DC neighborhoods where student debt is growing fastest are majority-Black. In Congress Heights and Anacostia, for example, median student loan balances are growing, but the number of adults who have attended but not completed college is also growing, leading to more people being saddled with debt without a degree.

These issues are wide spread and negatively impact District residents. Over the past several years, the Office of Consumer Protection within the Office of the Attorney General (OAG) has held a series of student loan clinics for District government employees who have questions about how to manage their student loans. Our goal has been to provide information to District-employed borrowers about their rights. Within hours of opening registration for the clinics, they were sold out, with hundreds signing up. Participants told story after story of the burdens they faced because of their student loans, including financial and emotional struggles, and the inability to pursue major life opportunities, like marriage and buying a home, because of fears over student loan debt.

OAG’s Role in Student Loan Oversight and Enforcement

Recognizing the crisis, the Office of the Attorney General is enforcing consumer protection laws on behalf of student borrowers. For example, in 2020, OAG secured over $500,000 in debt relief for District residents who had taken out private student loans while attending ITT, a now-defunct

for-profit school. And in 2017, OAG won a judgment of $425,000 against Student Aid Center, which had been running a student loan debt relief scam.

When dealing with student loan debt, a borrower’s main point of contact is usually their loan servicer. It therefore is crucial that the District be able to regulate servicers and that OAG be able to bring enforcement actions against student loan servicers that violate the law.

2016 Bill and Preemption Issue

In 2016, the District passed legislation establishing important protections for borrowers. The 2016 bill allowed the District’s Department of Insurance, Securities, and Banking (DISB) to regulate loan servicers; required student loan servicers to obtain a license from DISB, and allowed OAG to bring enforcement actions against servicers who violated District law. However, following the law’s passage, the D.C. District court determined that the law’s requirement that federal vendors seek a state license to fulfill their federal contract could not be enforced because it was preempted by federal law. A number of courts in states with similar laws made similar holdings.

Legislative Fix to Preemption Concern

While disappointing, these holdings were narrow, leaving a clear path for a legislative fix. The bill before us today offers that fix. Since the preemption concern related only to the requirement that federal vendors seek a state license to fulfill their federal contract, this bill would provide for automatic licensing of federal student loan servicers, eliminating the preemption concern. Similar legislation has been implemented in several states. These laws have not faced any preemption challenges, and the largest federal student loan servicer in the country, Nelnet, has endorsed this automatic licensing approach.

OAG Strongly Supports the Bill’s Expanded Borrower Protections

By addressing the preemption concerns, this bill will finally allow DISB to regulate federal student loan servicers, including by implementing important protections for borrowers holding public and private student loans.

OAG supports the 2021 Borrower Bill of Rights’ expanded borrower protections for District consumers. This bill provides District residents with affirmative protections when submitting written inquiries to servicers, when splitting payments, and when loans are sold or transferred to another servicer. It also protects cosigners and makes cosigner release more achievable. The bill also expands protections for borrowers of private student loans, providing them with some of the same protections that federal student loan borrowers receive, such as disability discharge.

Finally, this bill clarifies that the protections afforded to District consumers against unfair, deceptive, or abusive acts and practices apply to student loans and gives OAG the power to enforce the bill’s provisions.

Higher education is key to equal opportunity, but it will remain out of reach for many of the District’s most vulnerable residents, including first time college students, if we cannot ensure they will be protected from deceptive and abusive practices by student loan servicers. We look forward to partnering with the Council, DISB, and community stakeholders to ensure that student loan servicers are held to high standards and that student loan borrowers and cosigners understand and can make good on their rights under District law. On behalf of my colleagues and the Attorney General, I want to thank the Council for this opportunity to discuss the 2021 Borrower Bill of Rights. We stand ready to continue our work to protect District student loan borrowers. I welcome any questions you may have.