Following Hearing Examining Abuses in Student Loan Servicing Industry, Brown Announces Plans For New Legislation Aimed at Preventing Families of Deceased Borrowers, Co-Signers From Being Harassed by Lenders

Brown Was Joined by an Ohio Family Who Received Student Loan Debt Collection Calls Following Death of Son

WASHINGTON, D.C. — On Wednesday, U.S. Sen. Sherrod Brown (D-OH) held a news conference call to announce a new plan aimed at preventing families of deceased borrowers or loan co-signers from being harassed by lenders. The call followed a hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection chaired by Brown that examined the often troublesome relationship between student loan servicing companies and borrowers.

“Student loan debt now exceeds both credit card and auto loan debt in the United States. Yet borrowers and their co-signers often lack the proper knowledge and information they need to fully understand their financial obligations,” Brown said. “This current system is not designed for people to be successful. Student lenders and servicers must take steps to ensure borrowers are fully informed of their policies – including what happens to a family and co-signer if tragedy occurs. No family should be getting calls from a collection agent following the death of its loved one.”

Brown was joined by Olivia Katbi, the sister of Andrew Katbi. Andrew, a 24 year-old Delphos, Ohio, native was tragically killed weeks before his law school graduation. Instead of being given time to mourn the death of their loved one, Katbi family members began receiving harassing telephone calls from a student loan servicer. Although the company’s policy states that it does not collect on a loan following the death of the borrower, the company’s collection agents aggressively pursued the family, demanding payment from Andrew’s mother who co-signed the loan. Thanks in part to the family’s social media campaign that drew public attention to the servicer’s collection efforts, the company ceased collection on the loan. Brown was also joined by Deanne Loonin of the National Consumer Law Center, who discussed additional issues facing private student loan borrowers and co-signers. 

According to an April 2014 report by the Consumer Financial Protection Bureau (CFPB), nearly 90 percent of student loans in recent years were co-signed – often by a parent or grandparent. Borrowers and co-signers are often unaware that the surviving borrower or co-signer could be liable for the full payment upon the death or permanent disability of the borrower or co-signer. Brown will announce a plan to require student lenders to clearly disclose their policies on payment of a student loan in the event of a student or co-signer’s death or disability.

Prior to the conference call, Brown chaired a hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection emphasizing the need for strong oversight to ensure that student loan servicing companies are accurately and truthfully assisting borrowers throughout the repayment process. Brown pointed to a recent figure that nearly $1.2 trillion is student loan debt is current outstanding in the United States – an amount that exceeds credit card debt and auto loans. Among borrowers in repayment, nearly seven million are currently in default. Brown called attention to a 2013 letter he sent to the nation’s largest banks and loan companies regarding the institutions’ efforts to modify loans for borrowers in trouble and their limited success in enrolling borrowers in affordable, income-based repayment plans. No bank responding to Brown’s letter enrolled more than five percent of borrowers who sought assistance in an income-based modification.

The hearing also examined recent reports by the CFPB Student Loan Ombudsman, which described pervasive and troublesome practices by loan servicers. These practices include allocating borrowers’ payments in order to maximize late fees, placing barriers to service members’ activating their military benefits, and erecting obstacles for borrowers to enroll in loan modification programs. In an effort to address these issues, Brown has sponsored a key package of legislation aimed at protecting students and families from abusive practices while working to ensure college is affordable for all families.

In April, Brown introduced the Refinancing Education Funding to Invest (REFI) for the Future Act. Brown’s bill would help individuals saddled with costly, private student loans refinance to more affordable options—at no cost to taxpayers In May, Brown joined U.S. Sen. Elizabeth Warren (D-MA) and several of his colleagues in introducing the Bank on Students Emergency Loan Refinancing Act, which would allow those with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers. The legislation would lower payments for millions of those individuals by hundreds or thousands of dollars a year. The average student loan debt among those who borrow to earn a bachelor’s degree is nearly $30,000 – and a shocking 30 percent of Federal Direct student loan dollars are in default, forbearance, or deferment. Meanwhile, the Government Accountability Office (GAO) recently projected that the government will bring in $66 billion in revenue on its federal student loans made between 2007 and 2012. 

Brown continues his fight to ensure Ohio’s students can receive an affordable college education. In April 2014, with student loan debt now exceeding $1 trillion, Brown announced his support for the Know Before You Owe Private Student Loan Act which would protect college students and their families from confusing private student loan practices. This bill would require private student loan lenders to make contracts easier to understand to prevent borrowers from ending up with unexpected and overwhelming debt.

Letters from financial regulators regarding the Katbi family can be found here: CFPB letter and FDIC letter.

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