On March 15, Governor Jay Inslee of Washington signed the Washington Student Education Loan Bill of Rights. This law had been in the works since 2017 when a report, released by Attorney General Bob Ferguson in December, documented significant disparities across gender, income, age, and race in student loan borrowing and highlighted a handful of the hundreds of complaints the office received from student loan borrowers about their student loan servicers. Providing strong protections for Washington’s more than 730,000 student loan borrowers, whose debt now totals $22.9 billion, the law changes Washington’s regulatory schematic for lenders and servicers operating in the student loan marketplace in the following ways:
- It creates the position of “Advocate” within the Washington Student Achievement Council to assist student education loan borrowers with student loans, akin to the position off “ombudsman” under proposed and enacted servicing bills in other states. The Advocate is expected to receive and review borrower complaints and refer servicing-related complaints to the state’s Department of Financial Institutions (“DFI”) or the Office of the Attorney General, depending on which entity enjoys appropriate jurisdiction. Other duties include compiling information on borrower complaints, providing information to stakeholders, and analyzing laws and rules.
- It requires servicers to obtain a license from the DFI. It does encode various exemptions from this requirement for certain types of entities and programs, such as trade, technical, vocational, or apprentice programs; postsecondary schools that service their own student loans; persons servicing five or fewer student loans; and federal, state, and local government entities servicing loans that they originated.
- Per this law, all student loan servicers, except those entirely exempt from the statute, are made newly subject to sundry statutory duties. For example, servicers must offer, free of charge, information about repayment options and contact information for the Advocate, provide borrowers with information about fees assessed and amounts received and credited, maintain written and electronic loan records, respond to borrower requests for certain information within fifteen days, notify a borrower when acquiring or transferring servicing rights, and convey disclosures relating to the possible effects of refinancing student loans to all borrowers.
- It imposes several requirements on third-parties providing student education and loan modification services. For example, it bars such persons from charging or receiving money until their services have been performed and charging fees in excess of what is customary, and it requires them to immediately inform a borrower in writing if a modification, refinancing, consolidation, or other such change is impossible.
- It compels institutions of higher education to send borrower notices regarding financial aid.
- It calls for the establishment, by rule, of fees sufficient to cover the costs of administering the program that it itself creates.
- Lastly, the statute provides for a complete exemption for “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” This exception, however, does not expressly cover state banks chartered in other states.
In many ways, this law builds upon Washington’s Student Loan Transparency Act. Set to go into effect in July 2018, this law requires higher education institutions to provide detailed notices about loan balances and estimated monthly payments every time a school offers a financial aid package to a student. Crucially, the Student Loan Transparency Act was itself modeled after legislation in Indiana, Wisconsin, and Nebraska. Indeed, bills similar to the Washington Student Education Loan Bill of Rights have been recently introduced in state legislatures around the country.
Troutman Sanders LLP will continue to monitor these state law developments.