In May, I sat down with Rhode Island General Treasurer Seth Magaziner to discuss the student debt crisis in Rhode Island. Here is some of that interview.
Jason Siperstein: Can you give me some background on the student loan environment in the nation and in Rhode Island?
Seth Magaziner: There is a real student loan crisis in this country that is having a negative impact on millions of Americans and hundreds of thousands of Rhode Islanders. There is more student loan debt than credit card debt. Rhode Island has the second highest average loan burden in the country and research shows that this is having a large negative impact on people’s lives.
This generation is less likely to engage in entrepreneurship than previous generations, and this is a problem. This country was built on the spirit of entrepreneurship and risk-taking.
And it’s not just a problem for young people. There are 16,000 senior citizens in Rhode Island with student loans according to AARP. These seniors have either taken out loans themselves or have taken them out on behalf of family members. Seniors are the fastest-growing segment of student loan borrowers.
Siperstein: Talk to me about student loan servicers. What role do they play?
Magaziner: Servicers are not lenders. They are the debt collectors, and it is a very poorly regulated industry.
We don’t have this problem with mortgages. Since the 2008 financial crisis, a lot of attention has been paid to mortgages. Student loan debt is still so new and is still largely unregulated. In fact, it is very common for students to have the wrong amounts drawn from their bank accounts at the wrong times. It is still common for the servicer to mistime a payment or misprice a payment, and this can ruin a student’s credit score.
Siperstein: Can you explain the student loan assistance programs?
Magaziner: If you have a public loan and have worked for 10 years in the public sector, under federal law, the balance of the loan is supposed to be forgiven. Think police officers, teachers, public employees.… However, the rejection rate for loan forgiveness is 99% because the servicer messed something up. Some cases involve technical glitches or honest mistakes, but at 99% you wonder if a large portion of these mistakes were purposeful. The servicers are not getting paid when the loan is forgiven.
Siperstein: Are there any consequences or repercussions for the servicers?
Magaziner: Currently, there are no consequences for servicers giving incorrect information or omitting information. The Consumer Financial Protection Bureau (CFPB) under the Trump administration shut down this unit two years ago. So, there is no federal oversight and only six states have regulation.
If the federal government is not doing anything, the state needs to do something. We recently introduced legislation so that Rhode Island can regulate student loan serving.
Editor’s Note: Since this interview took place, lawmakers passed a Student Loan Bill of Rights that offers Rhode Islanders new consumer protections and oversight of student loan servicing practices.
JASON E. SIPERSTEIN, CFA, CFP, is the president-elect of the Financial Planning Association of Rhode Island and president of Eliot Rose Wealth Management. He can be reached at firstname.lastname@example.org.