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California has a new 'student loan bill of rights.' Here's how it will help borrowers

California has a new 'student loan bill of rights.' Here's how it will help borrowers


Four million Californians owe nearly $150 billion in student loans, according to LendingTree.

Those borrowers now have more rights under a law that went into effect this year and gained teeth this month with a new ombudsman's office empowered to review complaints about student loan providers.

The law caps excessive late fees, and loan providers will be required to process payments in the best interest of borrowers under the law.

Here's what to know about the law, which advocates called the "student borrower bill of rights":

How did this law come about?

Advocates have called for the law for years, following reports that found student loan providers have taken advantage of borrowers.

A 2015 report from the federal Government Accountability Office found that 70% of borrowers in default could have reduced their monthly loan payments by capping them at a percentage of their earnings. But providers have failed to inform many of those borrowers of the option to do so, the report found.

That finding and other practices, such as failing to discharge student loans of borrowers with permanent disabilities, led California in 2018 to sue Navient, one of the biggest student loan providers in the country.

Assemblyman Mark Stone, D-Scotts Valley, introduced the law in 2019, citing California's lawsuit.

"California will keep pushing increased consumer protections because we understand that student loans not only affect the lives of borrowers, but have radiating negative effects throughout the economy," Stone said in a statement when he introduced the law.

What will this law mean for borrowers?

The law requires providers to act in the best interest of the borrowers. That means if you paid more than what you were supposed to on your loan, that overpayment should go toward reducing your principal debt — not toward the interests on your next loan payment.

Providers also have to minimize their fees.

For instance, you may have four loans, each with a monthly repayment of $100, for a total of $400. You may decide only to pay $200 on time this month.

Previously, providers could spread $200 across your four loans, charging late fees on all of them. Now, they are required to apply those $200 to pay off two of your loans, meaning you're only charged late fees on the two you didn't pay on time.

Providers also have to inform you of the ways you can save on your student loan payments. Before, if you're about to go into default, providers may have pushed you toward forbearance, which often leads to additional interest. Now, providers must inform you of other options such as income-based repayment.

Under income-based repayment, "you can make as low as $0 and still make progress on repayment terms," said Suzanne Martindale, senior deputy commissioner for consumer financial protection at the California's Department of Financial Protection and Innovation.

The law caps late fees at 6% of any amount past due. The cap is especially applicable to those who have private student loans, which had often charged a flat late fee regardless of how much you owe, said Mike Pierce, co-founder and policy director at the Student Borrower Protection Center.

The law also requires providers to have customer service professionals trained to help populations such as veterans, older borrowers, those with disabilities and those in public service.

The staff should be able to advise those borrowers of protections they have, such as public service loan forgiveness or the ability to discharge their loans, Martindale said.

The law applies to virtually all providers of student loans, with an exemption for federal credit unions, Martindale said.

How can I take advantage of this law?

The law starting July 1 established an ombudsman's office that will review student loan complaints.

The state has yet to hire for the position, Martindale said. She hopes to establish the position by fall.

However, borrowers can still submit complaints through DFPI now, either through its website ( or by phone at 866-275-2677 or 916-327-7585. Borrowers can also e-mail questions at

Keeping written documentation such as payment history and forms as well as being as specific as possible will best help DFPI process your complaint, Martindale said.

Meanwhile, the law also lets borrowers sue providers in court. You can go to your county's superior court to find referrals for no or low-cost legal services. For Sacramento County, the information can be found online at

You are entitled to get at least $500 for each violation, or at least $1,500 if it substantially interfered with your ability to pay back the loan, Pierce said.

What's next?

Stone has introduced another bill, Assembly Bill 424, aimed at private student loans. The bill, which is now in Senate, would require debt collector to document and prove that borrowers actually owe the money, said Chuck Bell, programs director at Consumer Reports.

Debt collectors have filed lawsuits against borrowers without proving they owe the money. Many of those borrowers can't hire lawyers and go to court, which has led to debt collectors garnishing wages, Bell said.

When she first got pregnant, Napan Crystal Ellis was homeless, living in a tent by the Napa River. Today, she has housing. She also recently had a baby girl, named Artemis.

Distributed by Tribune Content Agency, LLC.

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