North Carolina makes bipartisan effort to treat student loan borrowers fairly

Imagine being 17 years old, your mom has died and you are financially independent.

Imagine what it would mean at that moment to have a university give you a scholarship to play basketball.

Now imagine all of that taken away after an injury.

That’s the story of 37-year-old Kanethia Rankin, who amassed around $70,000 in student loans after her injury cost her her scholarship.

She tried to dig her way out of the debt, but said she was placed on a payment plan that she cannot afford.

“I’ve been trying to establish a payment plan that I can pay monthly to pull out of this debt and it’s been impossible,” Rankin said.

North Carolina debts

Rankin is one of the 1.3 million people in North Carolina who have collectively borrowed $48 billion in student loans and are now making payments to try to repay that debt.

Reps. Rachel Hunt, D-Charlotte, Jon Hardister, R-Whitsett and Mitchell Setzer, R-Catawba, are rallying behind these borrowers with House Bill 707, known as the Student Loan Borrowers’ Bill of Rights. It mirrors bills passed in 13 other states and Washington, D.C.

Hunt, a college counselor, said that when students take on these loans at 17 and 18 years old they’re being handed documents with a bunch of promises about repayment options and loan forgiveness that are not being upheld on the other side of college.

She said this bill is not intended to help people out of paying their debts but to push for fair treatment of the borrowers.

“This bill isn’t really going to do anything to reduce the amount of debt that borrowers owe,” said Rochelle Sparko, director of North Carolina policy at the Durham-based Center for Responsible Lending, “but it will make sure that they’re in the best possible bargaining position to pay back that debt, in a way that’s affordable.”

Monthly payments on student loans can be as much as, if not more than, rent or a mortgage payment with little wiggle room to have those numbers lowered.

“We need people to have the ability to have successful lives economically,” Hunt said. “It would help the state tremendously if they were treated in a way that they understood their responsibilities with these debts and knew how to pay them back, in a truthful way; but they don’t have that.”

Fair treatment

If HB 707 becomes law it would require the state commissioner of banks to license and regulate student loan providers, create a means for borrowers to complain about unfair lending practices and allow both the borrower and the attorney general’s office to sue lenders who do not follow the state guidelines on lending.

House members wanted to hold a hearing about the bill Thursday but had to push it off by a week to finalize a new version that Hardister said would emphasize that the bill does not apply to banks.

“We’ve involved the Banker’s Association and they’re not against the bill but they want to make sure we get the language right,” Hardister said.

He added that banks are already heavily regulated but non-banking institutions have no oversight.

“It’s something that I don’t think the General Assembly should ignore,” Hardister said. “I think we need to have some type of framework in place for oversight.”

Lawmakers said last month when they filed the bill that it is similar to what they did to offer residents relief from mortgage companies during the 2008 housing crisis. They said they hoped HB 707 would free up borrowers’ resources and help stimulate the economy.

Snowballing debt

Hardister said there are too many stories of people who took out student loans, didn’t get a job right away or couldn’t pay the amount required right out of college.

He said the loan companies haven’t been transparent about what happens when a person defers payment or goes into forbearance. He said those borrowers think they’re being given a break but they’re not told about the consequences.

That’s what happened to Rankin.

She has stories of trying to get loan payments lowered, deferred or put off and how it cost her.

She’s also answered letters saying her loans were eligible for forgiveness, but those lenders turned her down, or turned out to look suspiciously like scams.

Rankin said at some point she had to decide whether to keep a roof over her head or make her monthly payment. She ended up defaulting on her loan, affecting her credit score and then her ability to get a decent car and a house.

Making choices

Hunt said she has seen the way student loans and college tuition has hurt her students.

Like Rankin she’s seen students lose their scholarships after a sports injury.

And she said some students have put off working in the business they love or saving for retirement so they can pay back their loans.

“We know they can not just resolve this through bankruptcy or any other way,” Hunt said. “It inhibits people’s ability to live successfully.”

Hunt said her teenage students have no background in dealing with loans, and those who are the first generation to go to college or speak English as a second language are at more of a disadvantage in understanding how loans work than some of their peers.

Sparko said that even when families understand the student loans’ terms of service, providers are not fulfilling the promises they made when students left for college.

“They are not necessarily providing complete information or accurate information, or working with borrowers to get them into the best repayment plans possible for them,” Sparko said.

Sparko added that some loan providers have treated the borrowers so poorly that they’ve added billions of dollars in interest fees to student loan debt across the country.

Instead of treating borrowers like customers, Sparko said, lenders view the U.S. Department of Education as their customer.

Sparko said the department gives out 85 to 90% of student loans nationwide and contracts with 30 to 40 companies. She said of those contract companies, around five have the majority of servicing obligations.

It takes a lot of time and effort to put someone on an income-based repayment plan, Sparko said, so instead of giving that option they defer payments.

Deferring payments increases the amount of interest a borrower accumulates and also negates their ability to have their debts forgiven if they didn’t make enough money for the time set out in the terms of the loan. She said this includes those offered that incentive for working in public service.

“There’s both anecdotal and data-driven analysis that these services are not giving people debt forgiveness when they’re eligible for it,” Sparko said.

This leaves borrowers with two options: complaining to the attorney general’s office or the Consumer Financial Protection Bureau.

But Sparko said those complaints rarely amount to anything.

Complaints

Scott Buchanan, executive director of the Student Loan Servicing Alliance, tells a different story and says before lawmakers find a solution they need to get to the root of the problem.

HB 707 requires a lender to pay fees to the state to be able to operate in North Carolina. He said those fees, along with attorneys’ fees to litigate the lawsuits that could be created under this bill, would eventually trickle down to the borrower, costing them even more.

Buchanan said during 2020, borrowers nationally made 98 legitimate complaints. He acknowledged that federal loan repayments were frozen during a portion of 2020 due to the pandemic. But Buchanan said over the past four years complaints have decreased 70%.

He said he works with student-loan borrowers and finds the majority of their complaints are that they took on more loans than they could afford and didn’t understand the repayment process at 18.

He added that college tuition costs need to be reexamined and North Carolina lawmakers control that at state colleges.

Buchanan isn’t completely opposed to HB 707. Buchanan said borrowers face actual problems and a portion of the bill calling for a state official to look into those complaints would benefit the state.

He said lawmakers should gut the rest of the bill until they have real data and information and fix problems after learning what they are.

Climbing out of debt

Rankin has been working with Sparko to get help on her loans.

“I’m trying to get sorted out,” Rankin said. “I’ve been working with a financial counselor and even with her help it’s been almost impossible just to climb out from under this debt, and it just seems like a bad nightmare that’s never going to go away.”

She said she thought after losing her mother at 10 and trying to be financially independent at 17 that going to college and getting a degree would benefit her and move her life forward.

“I really don’t think I would have attempted to get a college degree, had I known that it would have this type of effect with, with other positive things that I’m trying to do,” Rankin said.

Rankin never finished college but is now a manager at Starbucks, a company she said she loves and plans to retire from.

She believes going back and finishing her business degree would be beneficial to both her and her company.

And Starbucks does offer to pay for a bachelor’s degree from Arizona State University. But she said after what she’s been through with her student loan debt she’s too scared to try again.

For more North Carolina government and politics news, listen to the Under the Dome politics podcast from The News & Observer and the NC Insider. You can find it on Pandora, Spotify, Apple Podcasts, Stitcher, iHeartRadio, Amazon Music, Megaphone or wherever you get your podcasts.

This story was originally published May 27, 2021 at 2:32 PM.