# Student Loan Servicer Licensing > This webinar covers the complexities of state-specific licensing requirements for student loan servicers following the resumption of federal collections. It is designed for industry professionals who are currently servicing student loans or considering entering the space. The session addresses how to maintain compliance, the differences between servicing and debt collection licenses, and the interplay between federal and state regulations. Recorded: 2026-08-17 | Runtime: 58 min ## Key takeaways - Many states have implemented dedicated student loan servicer licensing requirements that are distinct from standard debt collection permits. - Federal student loan collections resumed in May 2025, creating a new environment that often requires specialized state-level licensing for servicers. - Licensing requirements are often state-specific, and some jurisdictions require servicers to hold both a debt collection license and a dedicated student loan servicing license. - Servicers must ensure all required licenses are approved before engaging in any communication with borrowers, as submitting an application is typically not sufficient for compliance. - Compliance with state laws often requires integrating new policies, staff training, and reporting procedures that go beyond standard debt collection practices. - Legal and operational considerations, such as the preemption of state laws by federal requirements, vary and generally require a state-by-state analysis. ## Transcript Good afternoon and good morning to all of you. My name is Joel Blackburn. I'm with Cornerstone Licensing and we are thrilled to have you join us today on this very timely discussion about student loan servicing. Today we are joined by Vashali Ralph and Christy Barger. And I'd love to tell you a little bit about them before we turn it over to them. Vashali Ralph defends companies in regulatory investigations and enforcement actions and advises on consumer protection compliance covering FC truth and lending, TCPA, databreach response and student loan licensing. She's a former supervising attorney in the Illinois Attorney General's Consumer Fraud Bureau. Christy Barger is with me here at Cornerstone and she's got 20 years here and she is a trusted leader in guiding clients through complex licensing, compliance, and business expansion challenges. Her expertise and proactive approach to state regulations ensure that clients stay ahead, driving their long-term success. Like I said, today's discussion is about student lending and federal student loan collections officially resumed on May 5th, bringing with them a new layer of regulatory complexity in the collections and servicing spaces. Many agencies are now discovering that a standard debt collection license may no longer be enough. So, this session's goal is to unpack what to be aware of if you are servicing or considering servicing student loans, what's changed in the last 5 years, and how to respond from both legal and operational standpoints. Now, due to the nature of the topics we'll be discussing today, I will read the following disclaimer. This information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up to date. It is not intended to be a full and exhaustive explanation of the law in any area. However, nor should it be used to replace the advice of your own legal counsel. So, as we go, you are invited to share questions and we hope to have a few minutes at the end of this to go over some of them. So, please share questions and yeah, we'll get to those, either at the end or if they prove to be pretty timely with the topic that we're on, we may dive into them sooner. So, Christy Vali, let's get started. I want to get Joel. I think Christy might have potentially accidentally dropped or had an issue while you were talking, so I just want to make sure. Thank you. I'm not talking to myself. Thank you. No, I can hear you loud and clear and I see people in the audience who are listening, too. So, I trust that Christie will rejoin us shortly. So, I'll let's get started. I want to just kind of discuss the lay of the land right now. And I think you're actually the perfect person to talk about this anyway, Michali. Why did states introduce student loan servicer specific license requirements in the first place and what's driving this sort of separation from traditional debt collection or loan servicer licensing? Yeah. So that is a good way to start and I just really want to thank Cornerstone before we get started to for having me and for hosting this and putting all the hard work of putting it together. I work with them a good amount. They're great partners and very trusted in the industry. So, thank you guys. I, you know, I think the student loan servicing, the state student loan servicing law started to become passed around 200, I want to say 16, 17 was probably the big push of it. It may have started a little bit before that. I didn't check the exact date, but I think there were a number of reasons why they got passed. One was just I think a perceived gap in federal laws. So servicing in general is covered by, you know, of course you have origination issues on the Truth and Lending Act, but unlike in many other consumer finance markets like, for example, mortgage, there's a whole boatload of mortgage servicing laws. In student loans, there's very few. There are some requirements on the federal side, but not really. And so I think states were perceiving that there was that gap in federal law and really wanted to try to fill that gap. At the same time, you did have a big push of advocacy groups, attorney general offices, a number of different consumer-focused organizations that were talking a lot about the uptick in consumer complaints on these topics. And they were talking about things like people not understanding how many payments had been applied. People feeling like they were in a constant cycle of debt where they never could understand how much they had to pay to get out. People saying they felt like they had paid off their loan and then, you know, they would still get a bill for a certain amount. Christy Barger: And so there was all these sort of nuanced issues. I would add to that and because it's I think an important one was a lot of issues with co-signers in the private student loan market, co-signers being on loans and then feeling like they never had a way to come off of a loan, not knowing what the requirements were to be able to come off of the loan if they wanted to. So all kinds of things. I think it was really a big basket of issues in the servicing context. Some of them I think were happened with more frequency than others and others I think were really more policy changes and sort of a awakening to the servicing community that hey listen you got to pay attention to these kinds of issues and maybe the way that it's done hasn't in the past we're really looking for a sea change. Christy Barger: So, I think those were some of the reasons why and of course again there have been the last thing I'll say and then would love to hear what Christie thinks too but it's like you know there have been big shifts in student loans in terms of the policy and the politicization of it and so you know at that time it was the thing to talk about in terms of you know sort of bad servicing again whether true or not that's how it was characterized as student loan servicers having problems with administering the servicing functions properly. I think that was sort of a natural transition from after there was a lot of investigation into faulty mortgage servicing practices and then you had this whole market trillion dollar market with you know potential servicing issues in it. And so there was this effort to want to try to call attention to it. And then you've seen upswings and down swings on that both federally and on the state level. I will say I think the states have been fairly consistent on their position with it. I think more of the swings have probably been with the federal administrations, but that's kind of the background of why we are where we are. Then you saw this passage of these laws. And Christie, please feel free to add anything to that. Christy Barger: Yeah, no, you're good. I was just going to welcome you back and sorry that you're having to deal with that stuff on your end, but we're just we're going over right now kind of the history of it and where we stand today and I was just trying to think when I saw the first student loan license get written and I don't remember when it was, but I mean, how have you seen the landscape of that change since we first started helping our clients apply for those? Yeah, absolutely. I think around 2019, we started seeing some of the student loan licenses kind of pop up or be mentioned. And then, you know, the federal government had some contracts out that was, you know, giving some people some exemptions. Others needed the license, and then of course things went kind of dark for a while the everything was put on hold. I'm starting to see a lot of stuff popping up now. I think there's like 16 or 17 different states that have some type of student loan. Some have a federal license as well that gets filed with the state. So that's kind of interesting to me, but I expect, you know, more states to kind of jump on as well and start having their own separate license from debt collection. Even though they may need a debt collection license as well. So there may be some duplication in some states. Christy Barger: So what has changed over the last five years? I mean, was this like is this just like the Thanos blip where like all of a sudden like they don't exist and they come back and it's exact, you know, it's exactly the same or it's completely changed and the world has moved on without them. You know, here's the licensing requirements have existed. It's not as if nothing got repealed, nothing got necessarily put on hold. I think what was on pause was the actual collections of defaulted student loans. And I think that is has is going to cause and I think is expected to cause significant issues in the servicing of student loans in general both pre-default and post default because you have a whole lot of borrowers who have never made a payment on a student loan up to this point because they've not been obligated to do so. And so now you are kind of going backwards a little bit and trying to restart that clock where you get borrowers into a positive repayment history and pattern. And that is going to take an excessive amount of communication. And you got to do that communication properly. And when I say properly, it's sort of like you got to do it well operationally, but then you've also got to then you've also got to do it compliantly with all these various laws about things you can and cannot say both in the licensing statutes and in more general unfair and deceptive trade practice statutes. So, it's going to be tough I think on again on both servicing and collections. I would say the one thing that has changed in the licensing space from my vantage point is a push for specific private student loan laws and licensing regimes. I think before it was sort of like the first iteration of the licensing statutes were kind of all over the place were kind of like we're going to try to license everyone. Some states had put forward exemptions in the statute for federal student loans understanding that there might be preeemption issues. Christy Barger: Other states decided they were going to try it without even doing that and see what happens and kind of gamble. It was a little all over the place. Everyone kind of presumed that it would cover the private market, but within the last several years, I think the shift has been more to making sure that there are specific requirements for the private student loan lenders specifically in the collections context. It's good. So just last question on kind of setting the table. Can you specify today? Are we primarily talking about pre-default, post-default, federal, private? What can what are we going to be touching on today in terms of the licensing landscape for student loans? Do you want to go Christie? Christy Barger: Yeah, I think we're going to touch a little bit of all of that. Scrape the surface at least. That's exactly what I'm hoping to do anyway. You know it's some of this the licenses are specific that only defaulted debt you have to be licensed. Others say it's you know performing as well. It's interesting to me that some of the federal licenses now get filed at the state level. So I think while the states are you know they have their licensing too, there's a little bit of federal still involved. So, I think we're gonna scrape the surface on all of those topics. Sounds good. Anything you want to add to that, Michelle? Christy Barger: No. I mean, I tend to focus my comments a lot on the private market. I'll try to differentiate, but that's partly because, and I'll just give these comments about the federal market right now. One is that, again, it's going to take some time to restart the engines on federal student loan collections, but I know that they've already been restarted. But the second thing is that generally speaking, the Fair Debt Collection Practices Act doesn't apply to federal student loans. Now, that necessarily means you do have to look to state laws, and there are state laws that do apply. There are also a number of collectors that follow the FDCPA requirements regardless of the fact they're inapplicable just for kind of safety, soundness, kind of, so to speak, to borrow bank language. Just as a matter of best practice. But I guess the federal market is very specific in what they have to offer, right? I mean there are specific things you have to do pursuant to the Department of Education's guidelines in collecting on federal student loans. You have to offer particular repayment plans. It's complicated with respect to public service loan forgiveness. There are again ways that you can get out of default on federal student loans that the agencies that handle those portfolios are very experienced with. Christy Barger: And I would say if you're out there and you're kind of starting to get into that market and you haven't done it yet, you should really team up with somebody who knows that space really well because it is a very complicated space. And what we have seen in the past is that states have state attorneys general in particular have been very active about going after collections practices or even servicing practices on the federal portfolio when they think it hasn't been administered properly and that will continue to be a risk. Now I think the servicers and collectors in that space feel that you know the field is covered with the Department of Education. It really should be between the DOE and the agencies that work that debt or those accounts to handle the ins and outs of it. But it's again it's been a roller coaster up and down over time as to whether states have agreed with that approach. So all of that said, Joel, like that's one of the reasons why because that space is so nuanced and I think complicated, I tend to focus talking about what folks need to do inside of the private market a little bit, but there's definitely some crossover. There's no doubt there's crossover in the requirements. That's helpful. That's helpful. Well, let's let I know we're not going to be able to talk about all 50 states, but I would like to maybe do a little bit more of a deep dive on a few of them. So, as we're talking about the roughly third of the states that have some sort of student loan servicing licensure requirement, what are some states that like if all factors were equal, you would say, "Yeah, this state would be an easy one for you to begin with." versus like you really have to get your ducks in a row before you go after this particular state. What kind of factors do they need to be thinking about and what are some of those kind of good example states for the extreme ends of the licensing process? Christy, I'm gonna let you go first. Christy Barger: Okay. So, there's a couple of states out there. I think that now that this is just starting back up, a lot of this is just what I think is going to happen based on the fact that, you know, the regulators are kind of getting back into it. You're going to have the states that are going to take a long time. California, I think that one's going to take a long time. Maybe Illinois as well. Those are specific to if the loan is in default. So, that's what's triggered these specialty licenses for that. The requirements kind of seem to be the same as far as you need to have yourself prepared before you go get licensed. There are certain things that you have to provide to the states as part of these that most debt collection companies may not have in place. And so, you know, really meeting with someone understanding what your states are going to be and understanding all the requirements. You want to do that before you just jump into the pool of trying to get a license quickly. You know, some of the states have broader service frameworks. Colorado and Massachusetts, those are kind of two that have a little bit different than the pathway of California and Illinois. And then you've got some that are kind of on the watch list that are expanding or have something pending, New York and New Jersey. So, keeping your eye on all the states that are out there that already have these. Christy Barger: I think there's like 17 maybe. But there's going to be more. So, you know, you just want to get together with an attorney, make sure they understand what you're doing and you understand the requirements, and get your ducks in a row before you kind of dive into any state is what I would suggest. Christy, how different are those applications than like a standard debt collection license application. Christy Barger: So, a lot of these are filed on the NMLS system. And so, all of our debt collection folks know about that system. Now, so you've got the normal requirements there, the backgrounds, the fingerprinting, the control person, type of information that's required. These have a little bit more of a financial net worth requirement than we see in some of the standard debt collection. California, for example, theirs is 250,000 net worth of positive which is higher than I think any of the other debt collection. As far as disclosures, and that's something that a lot of people when you look at the licensing, the NMLS has a definition of who is control person. And so on these licenses, we're seeing they want more of the company staffing to be listed. And so that's going to trigger some MU2s and some additional requirements that people that probably aren't in there now may have to look at. They want to know like your accounting department, your ex litigation department, your pre legal department, your pre-exam contacts. Lots of add additional information and people are going to be triggered there. Kind of another thing that we're seeing out there is get this pulled up here. They really break down the reporting deeper than a lot of you the debt collection. Christy Barger: Illinois is one where you know they want the number of borrowers for direct loans pro direct plus loans parent plus loans. So they really get into the weeds there and how their breakdown of information you know a little deeper. And then another thing is the business plan. That's going to be different in this space than you would have at the debt collection space. So you're really going to need to look at your business plan and absolutely most likely have to amend that some to be able to get these licenses at the states. Thanks Christie. I think I'll take it from a different angle then because Christy's covered the licensing so well as I would expect. So you know I'll just point out this on the in terms of the statutes that cover the licensing like embedded in those statutes are a lot of different requirements. And so I think the thing I would point out is there are kind of buckets of these states where there are some that have very few requirements other than the licensing and bonding requirements. And then there are some that have a very significant amount of requirements for how you have to service including things like how quickly you have to respond to borrowers, mechanisms by which you have to apply payments, records that you have to keep or give to the borrower if upon request or even affirmatively provide. And so I would say, you know, I think some entities kind of course, the first question is always when you're going to get into a space or you're maybe going into a new market is always good, do I need a license? And what do I have to do to get it? And then they sometimes just put the statute down and are like, well, I've got the license now, so I'm just going to run with it. And then only until there's a problem do they remember to take it back out and remember to embed the requirements into policies and procedures. And into the ways in which they're operating. So, I would say it's definitely important to take a look at what the requirements are before you even obtain the license so that you know can you comply or can you not because you don't want to get into a situation where you're in a exam on the license and then you can't you know you haven't met the threshold requirements. So that's number one. And I guess maybe even to be even more specific than that and to spe and to talk with specificity about the defaulted market. There are some onerous requirements for folks who are collecting in certain markets namely California, Colorado, I think even Massachusetts. And what I mean by that is like before you can file collection actions in court against borrowers, there are over a dozen requirements of things you have to have told the borrower. Either provided in documentation or disclosed. And it is a long list and it is very difficult to comply with things that if you're a collection agency, you are unlikely to have access to unless you communicate with either the servicer or the you know the original creditor, the lender. And so it's it has taken and we've been advising clients in this space in particular in terms of like how do I actually do these things, you know, how do I actually comply with providing these notifications. It's not an easy and it's definitely not a one-size-fits-all because there's some operational hurdles for sure. And so I would flag those too. Those are again embedded inside some of these state licensing statutes. So you may not notice them if you're only focused on licensing. And then the other thing that causes some consternation for my clients is that if you aren't following a number of these activities, it's considered an unfair deceptive trade practice. So now you're boots dropping into regular consumer protection laws which are typically enforced by the attorneys general. So now you have that added sort of pressure of an enforcement agency having to kind of scrutinize what you're doing besides the actual licensing body. So another thing too go ahead. Sorry Joel. Another thing too we need to think about and kind of keep on the top of our mind is these are new policies and procedures. This is a different type of actions that has to be done. So, not only do you need these policies, but you need to do new training for your staff. They need to know the how they need to operate under the student loan servicing, not just the debt collection. And so, training is going to be very important at the agency level as well. That's good. Do you have to have a license in place before collecting on the account or servicing it or even before purchasing the portfolio? So you definitely need to have one in place before you start doing any communications with debtors or consumers. So just having a license submitted isn't acceptable. You need to wait for that approval. And sometimes that's hard because you know the states can take three to six months, sometimes a little longer for the states that really drag their feet and have a lot of different levels you have to go through a review. Michelle, I'll let you answer about before purchasing if they need to have a license. Yeah, that's a complicated one because it depends on what you're doing upon the purchase, right? And typically again, so when we talk about purchase, that is often a post-default like a debt buyer or somebody who is going to purchase a defaulted loan. So let's separate that from typically if you're servicing, you're not purchasing it. You're, you know, working under a contract of some sort, right? So let me separate in these buckets and maybe go in order of that life cycle of the loan which is okay if you're servicing and it's the loan is not in default typically you make communication with that borrower right away. So Christie I think is absolutely right like we don't usually advise to try to do any activities until you have the license. Now some states take an extraordinarily long amount of time to issue the license and we're seeing that too. And there are some risk tolerance questions as to what you should do there. But typically like you know we're I don't think any of us are in the habit of trying to tell people to operate without the licenses where licenses are required. So you got to kind of have your ducks in a row before you engage in servicing activity. And then you get that post-default segment which is okay if you're purchasing something and you're and you are you know waiting on your license what are you supposed to do and again I think this is where it overlaps with a number there's a number of statutes that overlap with each other in the collections context there's a requirement to try to provide some federal information on the validation notice within the first 5 days of communicating. So again, the question is how long are you waiting in order to engage in any activity and can you wait long enough in order to actually make sure you have the right licenses. And so the where I find actually the most complication is less about what type of entity you are in doing it. It's more about the activities that you're doing. And so part of it is that oftentimes there's a little bit of gray area. There are loans that are delinquent that are still sent to collections operations or agencies because those folks have some expertise in dealing with what is likely to be a defaulted student loan. And so but they will handle those loans differently. Now post def or sorry pre-default you are talking about servicing activities and so the hard part is more about separate like can you separate effectively what it is you're doing to then peg what kind of license you need and how you would characterize that activity. One of the biggest challenges with the state student loan servicing laws is they have a vast majority of them have a catch-all provision that says if you're doing any communication with the borrower on anything essentially that you fit under the activities of what is servicing and it takes a little bit of parsing out of the statutes to run an analysis as to whether or not you're doing any of the other you know is there a is there an and clause in there? So, you have to do more than just communicate. Is there an or clause in there? Are there semicolons or commas? It gets to be I think very nuanced and very specific to what people are doing and what is like does it pass the straight face test as to whether you're actually engaged in collections activity or servicing activity. But as with anything which is unsatisfactory in the law it's a kind of a gray and you have to run an analysis on it. So talk to me a little bit about the preeemption issue. Namely, to what extent can a federal contract with the Department of Education shield a student loan serer from the state licensing requirements? And where do courts kind of draw the line on preeemption in these cases? Sure. I also want I think someone has put a question in the Q&A. So, let me just answer it real quick and then I'll get to your preemption question. Maybe it's related actually because I think someone's asking whether when we're talking about federal loans, we're talking about just direct loans or whether we're also talking about fel felt loans. I and it there was a time period where people used to talk about direct loans, federally held felt loans and privately held fault loans. And there are some reasons for that. I think as the direct loan portfolio has really taken over, we tend to stop making those distinctions now and just talk about direct and sell. And if you're newer to this space, cell is a sort of old model of lending where there was an intermediary between the federal government and the lender. It was a guarantee agency and that was the system in which loans were originated. And then there has been a runoff portfolio on FEL loans. So there are still a lot of FEL loans out in the market, but there are no new FEL loans being originated. They're all direct loans. So to when I talk about it just to answer the question in the chat I talk when I'm talking about federal loans I'm talking about direct and fell and the reason is because in the defaulted space direct and fell loans are both eligible for federal loan repayment options that are not available on what I call purely private loans. So, a loan from a purely private lender that has nothing to do with the federal government is going to have different repayment options and not as many ways to get out of default. Maybe there's some specific ones a lender might offer, but in general will not have nearly the same amount of choices as will a direct or fellow loan. Christy Barger: So, hopefully that answers it. Okay, so Joel, you asked about preemption. Which I think is a really good question. The first thing I would flag on this topic is that many of the state laws do have exemptions or carveouts for federal student loans. Again, not it's not across the board and it's not on everything. So some after some consternation and even some litigation actually some of the states have carved out licensing only but have asked for servicers who are servicing federal student loans to still substantively comply with those requirements that I talked about before that can be somewhat onerous but have realized that there's maybe an issue with asking being a federal student loan servicer or a collector to get a license. And so most of them do contain some carveout in some shape or form for federal student loans. So it's important to examine it state by state. With respect to whether something is preempted or not, it's definitely not a blanket everything's preempted by the Higher Education Act. That would be lovely. I think for industry participants but it hasn't been the case and I'll give you some examples that really relate to these state laws because what has been found over time through various cases are that state law disclosures that don't supplant the federal law disclosures are still acceptable. Christy Barger: State unfair, deceptive trade practice kinds of statutes are not preempted by the federal government. So things that could be considered unfair and deceptive. Now remember that I talked about the fact that there are hooks into these statutes for unfair deceptive trade practices. Well, no surprises for that because that's a really good way to make an argument that your state law isn't preempted by federal law. So I would tell you that I'm doubtful there'll be a lot more challenges to these state servicing laws on preemption because they've figured out how to narrow it and also how to hook it into something that is unlikely to be preempted. But that doesn't mean that's not all across the board. There's certainly problems with trying to comply with both. Typically in this space we think about real conflict preemption. And again I'll just try to summarize in this way. There are really three main kinds of preemption: express preemption, field preemption and conflict preemption. And so when we talk about conflict preemption, it means that the state law has to conflict with a federal requirement. Christy Barger: So what you do when you figure out is something preempted or not is really look in this context to again is there something written down specifically in the federal law that conflicts with the thing that's written down in state law and it's less conceptual in this space than it is in maybe some others. There have been arguments about field. In other words, field preemption is that the Department of Education occupies the whole field and the whole space and there really shouldn't be space for the states. And in some other context outside of this one, that does work. In this one, it's not really taken hold, I think, as much as folks would have liked. And we can see that through a number of different challenges. The only other thing I'd say about preemption is that last year there was a big decision on how courts were going to look at federal agency guidance and there was a big decision called Lobbrite. And in that decision the United States Supreme Court said hey listen if a regulator says something that's fine but we don't necessarily have to agree with its interpretation. If the statute is ambiguous, we can kind of make our own decision. Christy Barger: And I only mention that it's a little off topic, but I mention it because I think again where you have ambiguity, you're going to end up having courts decide some of this, I think, a little bit more. And I think that's starting to pick up steam a little bit than simply just looking at language and comparing and making a decision by the agency itself. So, sorry that was kind of a long treatise there and I didn't intend for it to be, but hopefully that was helpful. Perfect. And we've got another question in the chat as well that I think it'd be good to tackle. How can servicers reconcile the differences between the rights of the lender versus the servicing laws? For example, if a lender who is not subject to the servicing laws has a provision in their credit agreement that's in conflict with the servicer prohibitions, what can a servicer do? For example, the lender has 48 on-time payments for cosigner release, but CT says refrain from requiring a student loan borrower to make more than 12 consecutive on-time payments. It's part of the eligibility criteria for cosigner release. Christy Barger: What a great question. Generally speaking, I mean, it's a good one because that is this whole space honestly, which is like there the states have put forward laws that are, I think, well-intentioned to some degree, but then like when you really go to the nuance of how to comply with those, it's complicated. You don't, it's not one entity making a decision about how to comply. And that's the same. And then Renee, I'm gonna answer your question here in a second, but that's the same as what I was talking about with, for example, what you have to do and what you have to collect information on before you file a suit against a borrower in, for example, California or Colorado. You as a collection agency, you're not going to have access to all of that information. So, it's going to be a lot of coordination. So, and it I just rephrased that because it's such a the point is so germanine to what Renee asked. And so, the general rule of thumb will be that the state law is going to trump a private credit agreement. So, if a private credit agreement has a requirement that is inconsistent with the state law, the serer is going to need to service according to the most stringent standard. So if in fact a credit agreement allows for something that is less ownorous than what the state law requires, the servicesers really should be following the state law and that's going to be their risk really. So they, you know, I wouldn't be surprised that as a lender you get a little push back from your serer that hey, I can't do this. Christy Barger: And that can be challenging. That can be challenging. Hopefully it can be worked out in the relationship. So Christie, let me pick on you for a second. We've talked already a little bit about some of the things to expect on the application, but then in terms of like ongoing maintenance. I know with a lot of these, the majority of them being in NMLS, you're going to be looking at a more standardized renewal process, but what does the ongoing maintenance look like in terms of the audits? I know you mentioned the reporting already. What's the renewal process look like for these student loan servicer licenses? Christy Barger: Yeah, absolutely. So, with any like with any other license, the renewal piece is a little bit easier than getting a license licensed initially. You're just updating stuff at that point that the reporting gets really deep. Most of these are filed at the NMLS and so they're all due at the end of the year, but most of them have some type of license annual report or some other type of miscellaneous filing that gets filed throughout the year where things really have to be broken down. It's important not to miss those. A lot of people will think, well, the renewal is not due till December. No, you have to do that in June or whatever it's due to keep that license current because those go together. With the auditing, I think the states are going to want to see again all your policies. Christy Barger: They're going to make sure your collectors are following them. Kind of nothing new there. You've got your continuation of bond pricing. The bonds cost a little more in the space based on the value that the state wants. Anywhere from I think 25 to around 100 is what I have seen on some of these. And so you've got that bond continuation that you have to do. And based on your activity, it could trigger the need for a rider because you need a higher bond. You need more coverage than you first started with. For example, so I think that's kind of the scope of the renewal side. It's a little easier, but still do those audits. That's outside of the renewals. That's very important, too. You don't want to find out there that you don't have a policy that you should have. And so that's you need to make sure beforehand that you're keeping up with that and as things change, which they will, your policies need to be reviewed and more training needs to occur at that time as well. Christy Barger: It's good. So looking ahead, you know, we're half a year into this current administration and the obviously the states have already said like we're going to, especially in the debt collection space, like we will whatever the federal government does not feel like they need to enforce, we will gladly take their place. Do you see that being true with student loan servicing? And I guess namely like if we're looking at a third of the states that have licensing requirements now, what might we be looking at come three and a half years from now when we're looking at a new federal administration? I do think the states are going to pick up the mantle. Again, maybe is the way to say it. I think they kind of already have, although there's not as much I think public enforcement action out there. I think that, one of the challenges the states do have is resource. Now, they're getting, I think, more resources. A lot of news articles out there about the states adding to their enforcement staff, adding in departments of financial services. And I think that'll be an ongoing continued effort for sure. The challenge for them is still like they, you know, there are big major national issues going on and they feel like they have to be on the front lines of pressing back against those. And does student loan servicing rise at the top? Christy Barger: I think I don't know. I think it's like a little bit to be determined. I don't think it's something to panic about. Especially now. I think it's less anxiety inducing now because we've seen the laws come out. So, you can kind of get a good sense by looking at the various laws what it is the states want you to do. It's never going to be perfect and that's tough, but I think it gives you a good road map from the, you know, 13 to 15 states, whatever it is, that have passed laws so far. So, there is a road map. I think that's the good news. The other thing I would point out that kind of supports that position is that interestingly around April, mid-April, the CFPB had put out a the Consumer Financial Protection Bureau had put out a memo about their priorities and deprioritization, so to speak. Christy Barger: And I found it to be interesting because some of the things they said about the priorities were still keeping front and center Fair Debt Collection Practices Act and Regulation F, which is the regulation implementing the FDCPA. That was kind of clearly in there. And then a deprioritization with student loans. But then when you couple those two things, you're kind of like, what do you want? What do you want me to take away from this? And so again, just kind of putting it out there that I think it's it is interesting. I think because the bureau has said so clearly that they don't aren't planning to pursue things in the student loan market just simply because they're student loans. And certainly Department of Education is going to be the same way. Where they had previously had this enforcement staff that was going to kind of take up some enforcement capacity there. I think you will definitely have states that realize okay we kind of are the only game in town. So these state laws are going to be one of the first things that they look at to see well let's go for the low-hanging fruit. Have you at least complied with that our state law is out there and tried to comply with that? Do you at least have the license? Have you at least tried to follow what's in there? And then we'll look at the extra stuff, you know, the stuff that's on top of that. And so I do think they are going to pick up on it. There's no doubt. I don't know about whether more whether states have the capacity to press forward on more legislation. I don't know, Christy, what you think about that. I mean, I'm a little 50/50. Christy Barger: Yeah, I think it's definitely going to be a couple more states are going to jump on over the next few years. And I think what's there will remain. One thing too that I wanted to bring up real quick, I had someone ask me, I had this license before. Can I just reinstate it? I surrendered it because things stopped. The answer to that is no, unfortunately not. Your company's changed since then. And the state's application possibly has changed since then. So, the fact that you've had a license before isn't going to be your quick way to get your new license back in place. I think that's very important to know for the companies that held these licenses for years. Yeah, great call out there. Very related to what we're currently talking about. Another question in the chat. Which state has the quote unquote gold standard or the most stringent or comprehensive student loan servicing requirements that a student loan servicer can adopt and know they are 99% compliant in all the other states with similar laws? Christy Barger: I know I wish I had that magic answer for you. I really do. Unfortunately, I really don't think this is one where you can even if you ran that exercise and truthfully, I've not run it in the ways that the question is being asked. I've certainly analyzed all the state laws many times over, but probably not in the way the question's being asked. But even if you did that, having run through the analyses, what I'd tell you is this isn't one of those scenarios where it's close enough that then you'd take off almost everything and be 99% there because what you would be left with is a number of states that have really high risk levels that maybe have differing standards. And so some of the states do take the more generalized approach where you could go that sort of 99% approach where they're saying don't misrepresent things. Don't charge fees you're not supposed to. You know don't misapply payments and they're framed in terms of prohibition. Christy Barger: So that's really more about you coming up with a set of controls and compliance procedures that will fit the bill. And so there are some states you can look at for that. But then the other states have very specific requirements that are different from state to state and about how you're supposed to do things. Someone actually in the chat put a great example which was for example a state may have a specific number of on-time payments that somebody has to make in order to release the co-signer. Now, you can't really go to lowest common denominator for that because if one state has 10 and one state has 12, you're not complying one way or the other. So, I hate to be the bearer of bad news, but I really would try to figure out what the requirements are in each state and then figure out how to adopt the policies you can for each one. Christy Barger: There are some overlaps though. It's not like all a nightmare and certainly we help people do that all the time. Yeah. And that's my recommendation. You would want to get an attorney involved to make sure that what you're doing is covered in your policies. It's pretty easy to jump on the NMLS and kind of see some of the differences like the business plans. It's clear that you'll you know this state has these five that have to be there and this state has these seven that have to be there. So you know you can tell that pretty easily by looking at some checklist. If you wanted to jump on there and kind of take a look at those. California, Massachusetts kind of seem to be the ones that we always talk about no matter what type of licensing we're talking about. As far as being pretty complex and different layers of review. So those are two to kind of look at as well is I want to say worst case scenario, but these are the kind of. Kidding. Not kidding. Right. Exactly. Just a reminder to everybody who's on, you know, we've got a couple minutes left. So if you've got any burning questions, don't be shy. Please drop them in the Q&A section and we will do our best to get to them. With the couple minutes we've got left, I'd love to just kind of clear the queue and see, you know, what have we not covered and specifically like if there's anybody who joined today who's like 50/50 on whether or not to even delve into this particular type of servicing or collections. What would you tell them? Is now a good time? What should they be prepared for? What have we not advised them on? And how can we prepare them to have a new successful portion of their business? Christy Barger: Yeah, I think it's a great time to be in this industry and space in part because there is a resumption of the collections activity and in all the servicing activity and so folks need help and I think if you've got an operation that has got a great reputation of providing those services in one way, shape or form. I wouldn't be scared of student loans. I think there are nuances to it but for example in the private student loan market it's not that different than with the exception of these particular overlay of these laws. The remainder of the operations and the business is not terribly different than collecting on other kinds of unsecured credit. So yeah there are things you always have to learn with a new industry sector. But that's what the rest of us are here for. Christy Barger: They can certainly help support that effort. So I think this will be a market where there will be a lot of activity just from talking with my clients and knowing this industry. And so I think there's a tremendous amount of opportunity. And it is a little bit unfortunate like we kind of got ourselves into this position but there will be a significant number of defaults because again consumers have not been used to paying because the pause lasted so long. So, kind of what it is. I hope that there's a lot of ways and efforts to try to mitigate that. And I know a lot of servicers are doing a lot of work trying to keep people out of default. But servicers also come under a lot of flack for offering never-ending forbearances. And I don't think that's the way to go either. So there's a little bit of being between a rock and a hard place on some of the sort of policy objective and then turning that into an operations that's initiative that's effective. But I would say the thing to do is really like again don't be I would always I you may have heard me say this phrase before but I always say don't be an ostrich which is like you know don't feel like oh well I heard a lot about these laws but I just don't want to deal with it because it sounds complicated or expensive. I guarantee you if you can find ways to invest in the compliance on the front end both on the getting of the licenses, renewal of the licenses timely and compliance with the substantive provisions, you will have a very marketable business and I think you'll go out there with confidence to be able to go to the lenders and buyers out there and say, you know, that you're really buttoned up and you're able to take volume and that's the name of the game. And so I would say, you know, check it out. Let us know if you need help. We've been dealing in these statutes for a very long time, so we're happy to help out. Christy, over to you maybe. And there is another question in the chat. Joel, I'll just in case she's I'll be quick then because I know we're almost out of time. Christy Barger: You know, yeah, I agree there's don't be scared just because the requirements are a little different or the training that you need to do, your staff is a little different. I think getting those licenses in place now, you're gonna have probably a good front ahead, at least a foot ahead of others. And so you would be able to go to clients and say, "Hey, look, I have what I need. Let's do this." So, you know, a little bit of pain in the beginning could make a really great business decision and move your business in the right in a forward direction. Thank you both. Let's get to this question quickly. Where is the crossover between licensing as a student loan serer and debt collector? And at what point would a student loan serer need to seek a collection license? Is this different by state or is it the point of default 270 days delinquent? It is different by state. It is not always a 270day delinquency you know delinquency period although I do recognize that's the industry standard for a default. You have to look at the definition of what triggers the servicing license and you have to look at the definition of what triggers the collections license and you have to analyze whether you're engaged in that activity and it's typically those definitions are not dependent on number of days. The definitions are broader. Collections licenses for sure the definitions are collecting on an amount due and owing you know it's and a lot of them do exactly what I just did which is use the word collecting inside of the definition of collections so those are a little more straightforward people typically when you know your loan is in default you know you're triggering the collections license the good news or the upshot is that like you some of the student loan servicing laws do say if you have the collections license, you don't need the servicing license or vice versa. But, so you would have to take a look at that. And then the ser the question on whether you're servicing still even though your loan is post a particular day of delinquency. That's a very that's a state-by-state question as to what triggers the definition. Christy Barger: Great. Thank you. This has been really enlightening and I just want to thank both of you for your time. I do want to, if you're listening now, I would direct you to both Henshaw's website as well as Cornerstone's website because there's going to be a lot of information on there that's going to kind of help you continue to delve through it. In particular, if you go to henshaw.com, Vashali was instrumental in putting together a 50-state guide on student loan servicing and it goes, I looked at it and it is very in-depth and goes into a ton of detail on the stuff that we talked about today. So, if there's a specific state or issue that we didn't cover today, I would highly recommend downloading that report. And it's been revised a few different times, I believe, as well. Is that correct for Shali? It is true, but I will give you the caveat that I haven't revised it in a number of years in part because we had the pause and yeah, we weren't seeing the passage of so many laws. So, I will definitely tell anyone definitely go look at it. I thank you, Joel. That's such a nice plug and we did when we wrote it, we spent a lot of time on it. There's even like a private student loan addendum at the back of the last edition. The last edition should be the fifth edition. But what I would tell you is it is definitely not current and there have been other laws passed besides what's in there and I know them. So, you should not pick up that guide and then think that you have got it all covered. We gave a good sense of I think what you need to know and I think it's a good starting point but it will not give you the final answer. Yeah. Thanks for that. And the I think the ultimate moral of the story is like let's have a conversation after this. Like I think Christy, Vashali, myself, we are pretty open with our time in terms of just wanting to educate the industry and do what we can to kind of guide you to whatever the next step is. And so please don't hesitate to reach out to Henshaw to Cornerstone as you do need help or guidance in navigating some of these very complex regulations that our industry is subject to. So again, I want to thank Christy Vashali. This has been awesome. I want to thank everybody for their time. We realize you could be doing a lot of things with your time and we appreciate the fact that you're spending it with us here. So stay tuned. We will have more webinar announcements here in the coming weeks and we hope you'll join us for those. So thanks again. Have a wonderful Thursday and talk to you soon. Canonical HTML: https://cornerstonelicensing.com/webinars/student-loan-servicer-licensing --- ## How to cite this page Cite as: "Student Loan Servicer Licensing." Cornerstone Licensing. https://cornerstonelicensing.com/webinars/student-loan-servicer-licensing Published by Cornerstone Licensing. 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