New York state Gov. Andrew Cuomo (D) recently announced in his 2020 Executive Budget proposals for new protections for student loan borrowers that would regulate loan servicers.

The protections are two-fold, including provisions to regulate student loan servicers as well as for-profit colleges. 

For student loan servicers, Cuomo proposed regulations that would require companies that service New York residents to obtain a state license and meet state regulations. The proposal would also ban upfront fees and require fair contracts and disclosures for borrowers.

Fatma Sonmez-Leopold, an assistant teaching professor of finance at Syracuse University’s Martin J. Whitman School of Management, said the scope of student loan debt as an issue is “unimaginable,” as it compounds with other forms of debt and could affect personal relationships. 

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The total national student loan debt has risen to more than $1.5 trillion, making it the second highest consumer debt category behind mortgage debt, according to Forbes.

Student loan debt has increased across all age groups from 2004 to 2017, according to data from the Federal Reserve Bank of New York. These increases in older age groups could be representative of parents and grandparents taking claim of student loan debt, according to the reserve.

Sonmez-Leopold also said that student debt may be contributing to the millennial housing crisis.

The Federal Reserve Bank of New York claims that higher student debt balance is associated with lower rates of homeownership. Individuals holding more than $25,000 in debt are less likely to own homes than those with less debt, according to the data from the board.

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Robert Arscott, an assistant professor of finance at Whitman, said student loan servicers might argue that federal loans should be regulated at the federal level.

Regulation can have pros and cons, Arscott said. While too many layers of regulation could prove to be harmful for the borrower, some level of regulation is still beneficial in reducing predatory practices by loan servicers, he said.

“Ultimately, if you get the balance wrong, what can end up happening is that (the cost) gets borne by consumers,” Arscott said. 

Cuomo’s proposals would also force for-profit institutions to spend at least 50 percent of their budget on education and limit the amount of funding for-profit institutionscan receive from taxpayers to no more than 80 percent. For-profit colleges are institutions that take tuition money and use it for expenditures other than education.

Sonmez-Leopold said for-profit colleges take advantage of students and force them further into debt by giving them degrees that won’t get them jobs — preventing them from paying off their loans.  The “country as a whole” should have a multi-faceted approach to protections for student loan borrowers, she said.

The governor’s proposals would also require for-profit colleges to report salaries for school leadership members.

Donald Dutkowsky, professor of economics at the Maxwell School of Citizenship and Public Affairs, said the proposed protections could “give students a better idea of what they’re up against” when contemplating the finances of higher education.

Dutkowsky said partial responsibility is on the student to be financially literate, but higher education institutions with expensive tuition costs, like SU, should also be aware.  

“It is incumbent on the university to understand that, especially as a private school, they have an interest in students succeeding and students being able to handle their loan burden,” said Dutkowsky.

Published on March 3, 2019 at 8:11 pm

Contact Kailee at knvick@syr.edu