Investigation launched into student debt relief industry
Governor Cuomo’s newly formed Student Protection Unit has launched an investigation into the student debt relief industry.
Led by the state Department of Financial Services (DFS), it’s designed to be a consumer watchdog for New York students. And, one day after being established in the 2014 Executive Budget address, the unit has issued subpoenas to 13 companies in its first official action.
The subpoenas, for a range of documents including advertising materials, will be used to investigate the potential use of improper fees and misleading advertising in this sector of the financial industry.
The investigation had been going on behind the scenes for several weeks ahead of the formal creation of the unit.
Benjamin Lawsky, Superintendent of Financial Services, says it’s too early to say whether the companies they’re looking at are currently breaking the law.
But, there are concerns that some are taking advantage of students.
“It certainly, from our initial investigation, looks like many of these companies are charging upfront fees, which they’re not supposed to under New York law in the first place. But second, that they’re charging fees at all for services that students could get on their own for free online,” Lawsky says.
Free services available
Typically, these debt relief companies help students consolidate multiple loans into one plan. Lawsky says such services are available for free through the US Department of Education, but it appears that some private companies are charging upfront fees to channel students into the free government programs.
He says there are concerns about the large number of companies online claiming they can solve student debt issues.
“Students nowadays, their financial lives and the rest of their lives are very much online and that is both a good thing, but it can also be a dangerous thing. And one of the things we’re going to be doing at the Student Protection Unit is making sure we get to students and let them know where are the safe places to go online to help themselves both make financial decisions and dig themselves out when they have problems.”
The average student in New York has more than $27,000 in debt. Lawsky says when that debt is mismanaged it becomes a problem for both the student and the state.
“It’s a problem on so many different levels. It’s a problem for the students for very obvious reasons, it’s a problem for the state to have its young people who are just coming into the workforce saddled with debt, especially if they can’t pay it back.”
Lawsky says it’s impossible to eliminate student debt altogether, but it’s important to have a system where it can be properly managed.
“I mean, it’s never going to be a situation where all students in society are able to go to school and not have debt. But we need to come up with a system where you don’t have this huge overhang of debt that is out there weighing on all of our young people as they move into the workforce.”
Lawsky says the Unit will also look into credit cards being marketed on campuses, and student health insurance options.
Struggling with student debt?
The Student Protection Unit has set up a hotline for student debt relief assistance. New Yorkers struggling with student debt are encouraged to call (800) 342-3736 or visit the DFS website for more information.