April 18, 2022
Honorable Nancy Skinner
Chair, Senate Committee on Budget and Fiscal Review
1020 N Street, Room 502
Sacramento, CA 95814
Honorable Phil Ting
Chair, Assembly Committee on Budget
1021 O Street, Room 8230
Sacramento, CA 95814
Honorable Sydney Kamlager
Chair, Senate Budget Subcommittee #4 on State
Administration and General Government
1020 N Street, Room 502
Sacramento, CA 95814
Honorable Kevin McCarty
Chair, Assembly Budget Subcommittee
#2 on Education Finance
1021 O Street, 4250
Sacramento, CA 95814
RE: Support for Department of Financial Protection and Innovation Student Loan Borrower Assistance
Dear Budget Leaders,
The Campaign for California Borrowers’ Rights and the undersigned organizations, representing borrowers, students, young people, consumers, teachers, non-profits, older borrowers, low-income communities and communities of color, requests your support of the current $10 million in the Governor’s proposed budget to the Department of Financial Protection and Innovation (DFPI) to conduct outreach and education efforts to student borrowers throughout the state. Given the magnitude of the student debt crisis, recent reforms to the student loan system, and the exiting of student loan servicers from the marketplace, we are also requesting an additional $20 million be allocated to DFPI for student borrower outreach for a total of $30 million.
The federal student loan system is complex and has a record of failing borrowers.
Now is the time to invest in support systems for student loan borrowers. There are nearly four million Californians with a total of over $140 billion in student loan debt. Federal student loan payments are currently set to resume in September after more than two years and over 60 percent of borrowers report they are not ready for payments to resume.1 Over one third of California borrowers will have their loan servicer changed before the end of the year, which creates confusing situations and risks of servicing errors. In addition, a recent NPR investigation revealed that student loan servicers are failing to properly administer the federal government’s income-driven repayment (IDR) plans, which is supposed to be the safety net program for low-income federal student loan borrowers. This investigation builds on a report last year from the National Consumer Law Center and the Student Borrower Protection Center that of 4.4 million people who have been repaying their federal loans for over 20 years, and so should have their loans discharged as part of the IDR program, only 32 have received this loan forgiveness.
There is also a once-in-a-generation opportunity for public service workers to access Public Service Loan Forgiveness (PSLF) who were previously ineligible, through a limited PSLF waiver with a deadline of October 31, 2022 that borrowers must apply for. A raft of problems pervaded both the IDR and PSLF program including a lack of outreach to eligible borrowers, processing errors, and failure to provide correct information about program guidelines – actions often perpetrated by the entities and student loan servicers responsible for administering the program. As a result, millions of public service workers have been cheated out of their right to loan forgiveness guaranteed under the PSLF program and, in the last couple of years, national news headlines reported 99% of all PSLF applicants had been rejected. We can’t let the years public service workers served, many essential personnel during the pandemic, be left out again. Navigating both the broken IDR program and the limited PSLF waiver process will require intensive outreach and education for borrowers, many of whom may need additional and individualized assistance.
Now is the time for California to invest in helping its student loan borrowers.
DFPI is emerging as the leading state agency in the nation in terms of supporting student loan borrowers - now is the time to give them the resources they need to execute their plans. DFPI has articulated a clear program for these funds, that coordinates centralizing resources and dispersing support throughout communities. California has the opportunity to lead the nation in state-led student borrower support programs. Over a dozen states have student loan ombudspersons, but none has the state-supported network of local legal aid attorneys and counselors who can work to resolve individual borrower cases across the state. The DFPI ombudsperson’s role is not intended to provide individualized counseling to every single borrower in the state; that is both unrealistic and impossible. As a part of a state agency, the DFPI ombudsman cannot act as the representative or
Student Borrower Protection Center and Data for Progress. Tracking Poll: The Impact of Student Debt on American Families. 2022. https://protectborrowers.org/new-poll-as-inflation-soars-large-bipartisan-majority-supports-president-bidens-pause-on-student-loan-payments/
attorney of individual borrowers. While the ombudsman and the DFPI can perform outreach, education, bring enforcement actions, and push for state and federal policies to help borrowers, they cannot act as individual borrower advocates against the federal government or other entities in an individual disagreement. The DFPI and the ombudsman can only attempt to mediate those disagreements and seek an outcome agreeable to the borrower. The ombudsman’s role is to develop and implement policies and programs to help borrowers and to represent them in state and national policy conversations.
The network of community-based service providers that DFPI has proposed to fund with this budget allocation would be a first-in-the nation program for student loan borrowers, but is modeled on successful programs for mortgage borrowers/homeowners.2 There are millions of California borrowers, with hundreds of thousands who have experienced long-term delinquency and default. In short, there is a lot of work to be done to support these Californians that requires a greater investment. Now is not the time to skimp or cut corners, with real deadlines and program changes on the horizon for borrowers, who will need help. Instead, increasing funding to provide for local legal aid organizations to work in partnership with community-based organizations will ensure that many of these borrowers can access help for their individual and often complicated cases. Student loan cases are extremely complex and tricky to assess. For this reason, the DFPI program must provide sufficient funding for both the training of non-legal counselors and ongoing partnerships between them and legal aid organizations. While some borrowers will only need simple assistance obtaining an income-driven repayment plan, for example, others will have more complicated cases that require legal assistance, including for borrowers harmed by for-profit colleges, borrowers facing debt collection lawsuits, borrowers who are eligible for, but unable to obtain, income-driven repayment or PSLF forgiveness, and many others. These types of cases can require many hours of legal work and can take years to resolve. As an example, the Department of Education only began resolving over 300,000 borrower defense claims, many of which had been pending for over 5 years, after fighting class action litigation and advocacy from many legal aid organizations. Over 100,000 of these remain pending, while harmed borrowers continue to file more of these claims each week.
This is an essential part of DFPI’s coordinated plan and is where the state will see its spending leveraged. The budget proposal is a one-time appropriation for 2022-23, however this work has both short- and long-term timelines that $10 million will not be able to support. Providing sufficient foundational funding now will ensure the program’s long-term success, which means better outcomes for California borrowers.
Each dollar invested in student loan support systems will leverage massive savings for individual borrowers, in terms of loan forgiveness and affordable payments, that will improve individuals’ lives and will recirculate into the local economy. For all of the above reasons, the proposed $10 million
Please see New York’s Homeowner Protection Program (HOPP) that provides a call center for consumers. https://ag.ny.gov/protect-our-homes
appropriation to DFPI for outreach and education to student borrowers throughout the state should be tripled to $30 million. We respectfully request your support of a total of $30 million to DFPI for student borrower assistance.
Sincerely,
Michael Young Legislative Representative CFT
Chuck Bell
Programs Director, Advocacy
Consumer Reports
Arnold Sowell Jr.
Executive Director
NextGen California
Leigh Ferrin
Director of Legal Services
Public Law Center
Natalia Abrams President & Founder Student Debt Crisis Center
Christopher Sanchez
Policy Advocate
Western Center on Law and Poverty
Jan Masaoka
CEO
California Association of Nonprofits
Andrew Avila
Policy and Advocacy Manager
Improve Your Tomorrow
Stephanie Carroll
Directing Attorney Consumer Rights &
Economic Justice Project
Public Counsel
Mike Pierce
Executive Director
Student Borrower Protection Center
Esmeralda López
California State Director
UnidosUS
Mahmoud Zahriya
West Regional Director
Young Invincibles