States Address Student Loan Servicing

Data from the National Center for Education Statistics, or NCES, states that 53.4 percent of post-secondary undergraduate students financed at least part of their education through federal loans in 2011-12, an increase from 34.4 percent in 2003-041. While the NCES’s data does not account for private loans, which would further raise this percentage, it already brings to concern the effect that increased educational borrowing will have on repayment rates and future personal financial indicators, such as credit scores.

The U.S. Education Department recently announced that the FY14 cohort default rate is 11.5 percent.  The rate, which is a measure of student federal loan borrowers who defaulted within a specific time period, provides a snapshot of trends in loan repayments. The department’s latest data further summarizes that as of June 30, 2017, 8.5 million federal student borrowers were in default which accounts for $140 billion in loan value.

To monitor this policy concern, the Institute for College Access & Success issues a yearly report on the amount of new student debt by surveying public and nonprofit colleges. The Institute’s 12th annual report of its ongoing “Project on Student Debt” found that the average debt for the graduating class of four-year institutions in 2016 ranged by state from a low of $19,975 to a high of $36,367. The report also stated that the average number of students that graduated with some level of debt ranged by state from 43 percent to 77 percent.

Among the policy recommendations provided by the Institute for College Access & Success is the improvement of student loan servicing, specifically their ability to better communicate with borrowers regarding repayment. The report found that “many struggling federal student loan borrowers who would benefit from IDR [Income Driven Repayment] plans have not enrolled, and the [Education] Department’s own data show that the majority of enrolled borrowers missed their annual income recertification deadline”.2 To address these type of concerns, some states have recently passed legislation to strengthen the information available to borrowers during the repayment phase as well as set regulations for student loan servicers.

In 2015, Connecticut passed the nation’s first ever Student Loan Bill of Rights in response to the state’s student debt problem. According to the Project On Student Debt, 2016 Connecticut graduates were reported to carry the third highest average debt in the nation. The state was also ranked 18th in the proportion of students who graduated with some level of debt.

The legislation established a Student Loan Borrower Ombudsman office, which is responsible for implementing and maintaining a student loan borrower education course, receiving and reviewing borrower complaints, compiling and analyzing data, and providing recommendations for further policy changes. The act further establishes a requirement for student loan servicers to register with the state before they can operate.

In 2016, the California Legislature approved a comparable measure called the Student Loan Servicing Act which imposes a licensure process and regulates student loan servicers. The act intends to provide borrowers greater access to information on repayment, overpayment and loan forgiveness options.

Additional states have recently considered similar provisions. Legislation was introduced in Illinois, Maine, New York and Washington in 2017. While the proposed bills were not enacted into law, they exemplify the ongoing concern states share for addressing student debt and its servicers. 



1 Using Federal Data to Measure and Improve the Performance of U.S. Institutions of Higher Education. (2017, January). Retrieved from

2 The Institute of College Access & Success. (2017, September). Student Debt and the Class of 2016. Retrieved from