SALEM, Ore. (AP) — Oregon’s attorney general is joining a growing movement among states to protect those who take out student loans, introducing legislation that would crack down on student loan servicers like Navient and Nelnet.
Attorney General Ellen Rosenblum backed a proposal on Monday that would regulate student loan services and force them to be licensed under the state. It would also create a student loan ombudsperson to help borrowers navigate a complex loan process.
“Graduates are often asked to make financial decisions with relatively poor information, and in a market where debt servicers are ultimately calling the shots,” the attorney general said during a press conference.
The proposal is based on Connecticut’s so-called Student Loan Bill of Rights, which has been picked up by other statehouses across the country. At least four states plus the District of Columbia have passed similar laws aimed at regulating servicers.
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Student loan companies have previously come under fire for allegedly misleading borrowers into taking up unnecessary and costly repayment plans. The attorney general’s office said that at least 58 percent of students in Oregon graduate with debt, and that the state’s outstanding student loan debt has surpassed $18 billion.
Rosenblum said borrower protection is essential in a world where student debt has become “inescapable” and a “burden of a lifetime.”
But, if passed, the measure could face a court challenge, as student loan servicers and the U.S. Department of Education have pushed back against states regulating what they say is a federal program.
Students are issued loans from the federal government, and servicing companies ensure that the loans are repaid. Rosenblum said states have the power to regulate servicers, who are often private entities.
That’s against the view of the Trump administration, which has openly discouraged states from passing legislation that would regulate student loan servicers. In a memo last February, the Department of Education said that only the federal government can oversee the student loan program.
Servicers have made similar arguments in lower courts across the country, with mixed success.
Seth Frotman, executive director of the Student Borrower Protection Center, said state action is necessary to circumvent a federal government which he says refuses to take action on the growing student debt crisis. Frotman previously oversaw the $1.5 trillion student loan market for the Trump administration, and resigned in protest over the government’s attitude toward student borrowers.
“These predatory student loan companies view borrower struggles as a chance to make a quick buck and for too long student loan companies have been allowed to operate in the shadows unchecked,” he said.
Up to 12 more states could be considering borrower protections within the next few years, according to Frotman.
Follow Sarah Zimmerman at @sarahzimm95