Lawmaker files 'bill of rights' for people with student loans

Aug. 26—A bill filed for consideration during next year's General Assembly session would place restrictions on providers of student loans in Kentucky and would give the state power to investigate abusive student loan practices and levy fines.

The bill was filed by Rep. Patting Minter, a Bowling Green Democrat, and Rep. Attica Scott, a Louisville Democrat. In a press release, Miner said the bill is titled the "Student Loan Borrowers Bill of Rights."

If approved, the bill would require student loan providers doing business in Kentucky to be licensed by the state. A license could be revoked or suspended if the provider was found to have engaged in "dishonest or inequitable practices which may cause substantial harm" to borrowers.

The bill would give the commission of the Department of Financial Institutions the authority to investigate complaints about student loan providers by obtaining documents, holding hearings and compelling testimony under oath. Loan providers who have engaged in prohibited practices could be fined.

Minter, a professor at Western Kentucky University, said a goal of the bill is to create transparency, so borrowers understand the conditions of their loan agreements.

"I've heard students complain about many aspects of the student loan industry," Minter said Wednesday.

Minter first filed the bill during the opening days of the 2021 legislative session. The bill was assigned to a committee, but it was never called for a vote.

Minter said she spoke to one individual who never missed a student loan payment over 10 years, but only reduced the principal of her loan by $700.

"She's signed a predatory agreement," Minter said. "People don't know what they are signing, because providers aren't required to disclosing anything."

The bill says providers can't interfere with a borrower understanding the conditions of their loan or take advantage of the borrower's lack of understanding.

"It would require the student loan processor to be fully transparent in their statements," Minter said. "It's very much analogous to the mortgage industry."

The bill would also prohibit student loan providers threatening a borrower's credit rating and would allow borrowers to file lawsuits against providers.

"In the mortgage industry, there are lots of rules about disclosure," Minter said. "(The student loan) industry is the wild west, and it's time we leveled the playing field to make sure the deck is not being stacked against borrowers.

Other states, including Illinois and Virginia, have enacted similar bills.

"If a state is known to have lax oversight ... it becomes a magnet for predatory lenders," Minter said.

If the bill is passed, repayment conditions and interest rates will have to be clear in student loan agreements, "so everyone understands what they are signing and what their responsibilities are," Minter said.

James Mayse, 270-691-7303, jmayse@messenger-inquirer.com, Twitter: @JamesMayse

James Mayse, 270-691-7303, jmayse@messenger-inquirer.com, Twitter: @JamesMayse