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June 25, 2020

'First in the nation' law protects student loan borrowers

Law requires debt ‘rescue’ companies to be licensed, follow restrictions 

DES MOINES ― Beginning July 1, Iowa will have one of the nation’s strongest laws protecting student loan borrowers against predatory practices.  

Gov. Kim Reynolds signed Senate File 272, which requires education debt-management companies — often known as “student loan rescue” or “relief” companies — to obtain a license from the Iowa Division of Banking and provide disclosures and other protections for borrowers. 

“We believe the legislation is the first in the nation to address regulation of student loan rescue companies specifically,” Attorney General Tom Miller said. “Thank you to lawmakers and Gov. Reynolds for supporting this common-sense regulation.”  

Miller’s office had proposed the legislation, which gives new enforcement authority to the office and the superintendent of banking. 

For years, the Iowa Attorney General’s Office and Iowa College Aid have warned students to beware of “loan rescue” organizations. Such organizations promise loan forgiveness, reduced monthly payments, or other loan benefits in exchange for an up-front fee, with many companies also charging ongoing, monthly fees. In reality, these companies offer no programs or benefits borrowers couldn’t access by themselves or through their federal student loan servicer for free. 

In some instances, consumers believe payments to the rescue company are being credited toward their student loan debt, only to find out months or years later that they have only been paying the debt relief company. 

“Other ‘rescue’ companies are criminal operations looking to steal identities and money,” Miller said. The personal information borrowers share as part of their sign-up process gives scammers all they need to empty a bank account or steal a borrower’s identity. The debt-management companies often go by names that imply they are government agencies or nonprofit organizations to gain the trust of borrowers and avoid triggering alarm bells that typically go off when a caller asks for Social Security numbers and bank account information. 

Current law requires debt management companies to be licensed and regulated by the banking superintendent. The new law expands Chapter 533A’s definition of “debt management” to include those serving as an intermediary between a debtor and one or more creditors or loan servicers of an educational loan. 

The bill prohibits licensed educational loan debt management companies from a list of activities, including: 

  • requesting or receiving payment before fully performing all contracted or represented services;  
  • executing a contract in violation of the law; 
  • prohibiting or impeding a debtor from contacting any creditor,  lender, loan servicer,  government entity, attorney, or other individual that may seek to help the debtor;  
  • accessing or obtaining a debtor’s federal student aid information in violation of federal law; and 
  • compensating employees and independent contractors on a commission-based system. 

The bill provides that debtors: 

  • have an unconditional right to cancel within three days of signing a contract;  
  • receive prominent disclosures of their rights and protections, including a notice of cancellation; 
  • may bring a private action against a licensee for a violation of the bill’s provisions. 

The attorney general can pursue violations of the law under Iowa’s Consumer Fraud Act, and courts can impose a civil penalty of up to $40,000 per violation. The banking superintendent can also investigate complaints or seek injunctions against alleged violators.The superintendent of banking may investigate complaints, take disciplinary action against licensees, or pursue remedies against unlicensed entities 

FREQUENTLY ASKED QUESTIONS BY BORROWERS: 

Q. What if I’m having trouble paying my loan? 

A. Borrowers seeking to lower their monthly payments, postpone repayment, or apply for loan forgiveness should contact their federal student loan servicer directly. (The name and contact information for a borrower’s loan servicer can be found by logging in at StudentAid.gov.)  

Student loan borrowers hit hard by the effects of the COVID-19 pandemic can find some help, thanks to the federal CARES (Coronavirus Aid, Relief, and Economic Security) Act. The legislation suspends payments on federal student loans until Sept. 30. See more information here at the Iowa Attorney General's website. 

Q. What warning signs should I look for? 

A. When contacted about student loan assistance, here are some warning signs student loan borrowers should watch for: 

  • Direct solicitations via postal mail, e-mail, text, or phone from unknown companies; 
  • Requests for payment in advance; 
  • Guarantees of loan forgiveness, especially immediate forgiveness, and any claims that sound too good to be true; 
  • Requests for your Federal Student Aid ID (FSAID), or offers to create one on your behalf. Companies can execute transactions on your student loan that you do not know about and may not want. Federal law prohibits sharing an FSAID, as well as using another person’s FSAID. 

For more information on student loan rescue offers, see this Consumer Focus newsletter

Q. Where can I find help? 

A. To find out whether a debt-management company is licensed, enter their name and contact information in to the license verification page on the Iowa Division of Banking website or the Nationwide Multistate Licensing System site.  

Reliable information regarding loan forgiveness, repayment plans, and deferment and forbearance can be found on the U.S. Department of Education’s Federal Student Aid website, StudentAid.gov.  

Iowa also offers loan forgiveness programs, which are outlined on the Iowa College Aid website, IowaCollegeAid.gov.  

Beware of loan forgiveness programs through a search engine, which can yield paid results for companies not affiliated with federal loan servicers. 

If you think you’ve been victimized by a student loan rescue scam, file a complaint with the Iowa Attorney General’s Consumer Protection Division. 

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