As the Trump administration scales back regulation of student-loan servicing companies, states like New York — where residents owe more than $90 billion in student debt — must move to protect student borrowers, an industry watchdog urged.
“In many ways, New York State and New York City have been a remarkable road map in how states, especially now, can step up,” said Seth Frotman, the founder and executive director of the Student Borrower Protection Center, a nonprofit that advises students on dealing with student loan servicing agencies.
“The Trump administration and Betsy DeVos made it very clear they no longer have any interest in actually trying to help these Americans who are really struggling,” said Frotman, who made headlines last August after criticizing the Trump administration in his resignation letter from his post as the Consumer Financial Protection Bureau’s student loan ombudsman.
He spoke at a panel on student debt organized by the Community Service Society on Thursday.
According to a recent report by Frotman’s organization, nearly half of all millennials in New York owe money on a student loan. In total, New Yorkers owe more than $90 billion in student debt, according to the report.
In response to the student debt crisis growing across the country — Americans nationwide owe an estimated $1.5 trillion on student loans — New York lawmakers and consumer advocates have been taking steps to better protect students and their families from predatory loan practices, panelists said.
In September former New York State Attorney General Barbara Underwood sued nine student loan debt relief companies, charging that they misrepresent themselves to potential borrowers to induce them to take on debt and charge illegal upfront fees.
But State Sen. Kevin Thomas, D-Nassau, said state legislators need to do more to rein in student loan servicers, which are often accused of misleading borrowers and withholding information about payment options.
Thomas, who chairs the Committee on Consumer Protection, is pushing a bill passed by the committee that would require student loan servicers to obtain a license from the state Department of Financial Services. If the companies were to engage in fraudulent or misleading practices, the license could be revoked, under the language in the bill. The Assembly and State Senate have yet to take up the measure, but Thomas predicts it will pass.
“When you look at the bills, it’s like commonsense language, and when anybody looks at it, it’s like, how is this not the law already? I have a lot of hope that now, state government is moving at a rapid pace and the senator and I hopefully will meet and be able to work on these things in both of our houses to get people on the ground to help folks,” said Kenneth Zebrowski (D-Rockland). “We need to come up with a regulatory model.”
For New Yorkers like Heidi Udvardy, a 55-year-old speech therapist in Westchester, steps to reform the industry are welcome.
Udvardy owes approximately $140,000 to Navient, one of the largest student loan servicers in the country, and she feels that it often doesn’t have her best interests at heart.
When she has called, she said, “I felt they weren’t forthcoming with information about better ways to pay off a debt.”
“I felt it was their duty to help me,” said Udvardy. “I assumed they wanted me to pay off their loan.”
Instead, Udvardy said she was only given two options whenever she spoke with Navient: make a payment today or enter into forbearance – during which she would stop paying but interest would continue to increase. Although other options, like a plan that would allow her to reduce her monthly payment, exist and are more forgiving of a borrower’s financial situation, Udvardy said Navient never spoke of them.
Navient did not immediately respond to a request for comment.
Frotman hopes that through his advocacy, state leaders will begin to understand the scope of the issue so many Americans, including high percentages of vulnerable populations, face.
“This is not on many people’s radar,” said Frotman.
When he left his federal post, he wrote to Mick Mulvaney, the then-acting director of the bureau and now Trump’s acting chief of staff: “You have used the bureau to serve the wishes of the most powerful financial companies in America.”
But despite what he calls a “broken system,” and a federal government that in his view believes “student loan companies are above the law,” Frotman remains hopeful that relief is on the way for student borrowers.
“When you see those numbers, the true scope and size of the student debt crisis, what it’s doing to communities big and small, urban and rural,” Frotman said, “you’re starting to see folks realizing that this is your problem and they’re starting to step up.”