Oregon state lawmakers passed Senate Bill 485 on June 25, which declared an emergency around the servicing of student loans, created important consumer protections for borrowers and instituted functional regulations for student loan servicers.
“Significant concerns surrounding this industry, and the real life impact of student debt burdens on Oregonians point to a need for more oversight,” stated the Oregon Department of Justice background analysis on student loan servicing.
“On top of the sheer amount of debt, student loans are complex,” Oregon Attorney General Ellen Rosenblum said. “Borrowers make financial decisions…that will impact them for a long time to come. Once the loan payments come due, unfortunately, many [loan servicers] are more concerned about their bottom line than protecting the borrowers.”
Rosenblum, who has requested legislation that would protect “education-related” borrowers for many years, spoke with Portland State Vanguard regarding SB 485 and the state of the $20 billion student loan burden in Oregon, which is an increase of $2 billion from 2018.
“I made the student debt crisis one of my top initiatives since I was first elected Attorney General, and five years ago I hosted the first National Attorneys General Conference on this topic and hosted another one in the Spring of 2019,” Rosenblum said. “When I started hearing the numbers, I was just stunned by the amount of education-related debt that there is out there.”
“There is now an estimated $1.7 trillion [debt] nationally, which is just astounding if you think about it [in economic terms],” Rosenblum said. “That’s a lot of money.”
Elected officials are not the only ones concerned over the student debt crisis, nor the potential effects upon the economy and labor market.
Dr. Mary C. King is Professor Emerita of Economics at Portland State University and specializes in the economics of labor markets, history of economic thought and minority participation in the U.S. economy. King is also a Rhodes Scholar in Industrial Relations, an honor received after her time at Oxford University.
“Student debt has been growing quickly, and is now the second biggest form of debt in the U.S. Only mortgage debt is larger,” King said in a recent discussion with Vanguard.
“In Fall 2012, I taught a PSU Capstone class with my colleague, Barbara Dudley, on ‘Student Debt – Economics, Policy and Advocacy,’ which resulted in a class report advocating a pay-it-forward strategy for Oregon that was presented in front of a legislative panel at PSU and to Portland’s City Club,” King said. “Class members testified to legislators in Salem and to the Higher Education Coordinating Committee.”
“In a ‘pay it forward’ system, students pay no tuition or fees up front, but, instead, pay a small percentage of their income above a certain threshold into the system, starting perhaps [five] years after they’ve graduated,” King said.
The recent legislation passed by Oregon lawmakers does not address King’s aspects of student loan policy specifically, but Rosenblum believes that targeted regulations protecting education-related borrowing and loan servicing are critical to “get the ball rolling.”
“It just seemed that if we [as elected officials] were not going to pay attention to this crisis, we were harming our students,” Rosenblum said. “Students have every right to assume that when they borrow money for their education, it’s going to be a [net-positive].”
“[Students assume] that they are going to actually have an education, and be able to have a good life, to have opportunities, to have the things their parents had, like buying a car, a house, have a family if they want to, without having that burden of debt control their lives,” Rosenblum said.
However, a lack of regulatory legislation on a national and state level has left students relying on the institutions profiting off of their loan servicing to also help them navigate the process of paying off loans itself. The years in delay may have been costly to taxpayers and student borrowers alike.
In March 2021, the student loan servicer giant Navient was found guilty of violating the Consumer Protection Act by “engaging in unfair and deceptive conduct related to Washingtonians’ student loans,” according to the order from a district judge in Washington state.
Washington’s example is just one in a nation without substantial regulations on companies like Navient. Bills like Oregon’s SB 485 are also constructed to help borrowers navigate complexities of paying down a loan in the U.S.
“There are basically two main aspects of the bill; that licensing and regulation part I mentioned, and then the ombudsperson position, which is having an actual person being able to address real complaints and problems with the laws or regulations,” explained Kate Denison, Deputy Legislative Director for the Attorney General’s office.
SB 485 also mandates that the Oregon Department of Consumer and Business Services specifically protect the borrower under the new legislation, and will now process the licensing and regulatory work and house the ombudsperson.
The lack of loan servicing protections, in general, was a partial impetus for this legislation, and currently over a dozen states have some form or another of student loan servicing protections, though they vary in their ability to regulate or combat the practices of malicious loan servicers.
Such protections are critical to controlling the industry that is education-related borrowing, which has a poor track record and a great deal of influence on the labor economy writ large, considering that student loan debt is second only to mortgage debt nationwide.
Moreover, the issue of debt in general is a critical issue for Americans. After the 2008 financial crisis, the economy was seeing a leveling-out of consumer debt—even a brief dip in that debt—however the COVID-19 pandemic ground the labor economy to a halt.
According to Debt.org, consumer debt, in totality, reached $14.56 trillion after the fourth quarter of 2020.
“There has been consistent growth in four main areas of debt—home, auto, student loans and credit cards. Non-housing debt has risen faster, increasing 51% since 2013 compared with a 24% increase in mortgage debt,” according to Debt.org.
“Student debt is a real drag on the economy as it particularly hinders younger people, keeping them from starting a family, if they wish, and also building economic security for the future by pursuing further education,” King said. “Purchasing a more reliable car, starting a business, or buying a house—all of which create jobs for others. Even having children benefits everyone, as they are the labor force of the future and will pay for the Social Security and Medicare of older generations.”
“College is more expensive in the U.S. than elsewhere for two main reasons,” King said. “One, as more people are going to college, state legislators fearful of raising taxes have slashed their per-student support for public universities, forcing those public universities to raise tuition and cut costs by relying increasingly on part-time faculty with few benefits.”
“Second, many U.S. colleges are private and use various tactics to attract students, including offering fancy gyms, dorms and other amenities,” King continued. “Also, higher education is an ‘experience good,’ a product for which the quality can’t be determined in advance of experiencing it. Charging a high price is one strategy to persuade consumers that an experience good is high quality.”
“Finally, U.S. universities have succumbed to the idea that their upper administration should be paid the astronomical salaries increasingly paid [to] CEOs in this country, despite a lack of evidence in both cases that it’s money well spent,” King said.
Students are a wide-ranging demographic, and, according to Rosenblum, the fastest growing demographic of Oregonians defaulting on education-related loans are 65 years of age or older.
“They often co-sign loans for their children and grandchildren, but they also go back to school themselves, and they have fixed income at a certain point,” Rosenblum said. “The Consumer Financial Protection Bureau has estimated that the number of older Americans with education-related loan debt has quadrupled over the last decade.”
According to a 2018 American Psychological Association analysis, the financial stress of these loans created untold anxiety and depression in borrowers that have grappled to keep up with payments and other obligations, leading to overall negative mental health outcomes.
The federal government has made attempts over the years to mitigate the vagaries of education-related loans.
According to a 2019 Congressional Research Service report, the primary federal actions needed to help stem the predatory practices of loan services nationwide are, first, to settle the legal issues over preempting state laws that are inadequate or improperly enforced and, second, amending the Higher Education Act of 1967 so as to create what is known as a “private right of action.”
The Biden administration announced in mid-June of 2021 that an estimated $500 million in student loan debt will be forgiven, though it is unclear if these efforts will include student loan servicing, or what this means for state regulations like SB 485.
With the increased financial difficulties associated with attending upper education, some have questioned the efficacy of attempting a college degree in the first place, though some experts believe a college degree is still the optimal route for economic success.
“On average, a college degree pays off in the labor market, but you do have to think carefully about what degree you obtain and what you pay for it,” King said. “You can’t assume that the fact that a degree is offered means that it will lead to work with living wages.”
The Attorney General shared a similar sentiment and will continue to protect the rights of students in the state of Oregon.
“What’s more important? Is there anything more important?” Rosenblum said.
