NCSL National Conference of State Legislatures : As Student Debt Levels Grow, States Look to Help Borrowers

By Andrew Smalley

More than 44 million Americans owe student loan debt and the total level of debt reached $1.53 trillion in 2018.

This debt can create negative effects for borrowers and the U.S. economy as a whole: A recent report from the Federal Reserve found that student loan debt is having a significant effect on declining homeownership among young adults.

States have responded to the challenges of student loan debt in numerous ways. Some states have designed loan forgiveness programs to help provide borrowers in certain professions with financial relief or full forgiveness over time. In recent years, several states have created new rules and guidelines for student loan servicers, the companies that manage repayment of student loans.

Borrowers often find difficulties understanding the terms and repayment options associated with their student loans. In 2017, the Consumer Financial Protection Bureau handled approximately 23,000 complaints related to student loan servicing. A 2018 survey found that 59% of borrowers experienced unclear guidance about their repayment situation and options.

In 2015, Connecticut became the first state in the country to pass a 'student loan borrower bill of rights.' This legislation includes provisions to require all student loan servicers in the state to be licensed and registered with the state Department of Banking. The bill also creates a student loan ombudsman to oversee borrower complaints in the state. Additionally, the ombudsman must collect data regarding student loan debt and create a borrower information course for students and families.

The 2019 legislative session saw a considerable uptick in similar student loan oversight legislation. Nineteen states introduced legislation and seven bills were enacted, more than doubling the number of states that had passed legislation in the prior four years. Since 2015, a total of 13 states have passed legislation to expand student loan oversight.

Advocates of these bills support states taking an active role in helping borrowers stay informed and creating additional regulation for loan servicers, while loan servicers argue these regulations only create additional costs and confusion for borrowers.

Additional information about state student loan oversight can be found in the Jan 2020 LegisBrief or on the NCSL webpage.

Andrew Smalley is a research analyst in NCSL's Education Program.

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