Protections for private student loan borrowers protect seniors and people with disabilities

In 2019, Maine led the nation by passing the Student Loan Bill of Rights (SLBOR) to address the predatory loan servicing practices that are exacerbating Maine’s student debt crisis.

Loan servicers were found to be changing interest rates at will, creating obstacles that made it impossible for borrowers to navigate repayment, and unfairly allocating payments in a way that maximized fees and interest. Maine’s SLBOR made it illegal for servicers to engage in these types of predatory practices.

But, while Maine’s SLBOR addresses fraud and misleading practices for those student loan borrowers with loans issued by the federal government, it does not protect borrowers with loans issued by private banks.

Private education debt amounts to roughly $800 million in Maine, with 12.6 percent of Maine’s borrowers holding at least some private student loan debt.1 While it is a relatively small percentage of the total debt, it is important to note that Maine’s rate of borrowers with private loans is higher than other states, which ranges between 7 and 10 percent.

There are three specific servicing practices commonly found in the private student loan market that are not covered by Maine’s SLBOR:

  1. Private loans require co-signers. These are often the parent or grandparent of a borrower. The worst of the private lenders obscure co-signer release provisions, continually changing the criteria and keeping co-signers on the hook for loans long after they should have been released from the loan. This leaves Maine seniors carrying their child or grandchild’s debt well into retirement. The fastest-growing segment of Maine’s population with education debt Maine is seniors, largely due to the co-signer requirements of private loans.
  2. Private loans lack provisions to discharge debt if the borrower dies or suffers total and permanent disability. Many private lenders deny legitimate discharge, especially to co-signers who remain liable for the debt even after the death of a child or spouse.
  3. Private loan contracts allow for loans to be accelerated by auto default where if the borrower dies or files for bankruptcy, lender requires faster repayment on the loan; often to a point that forces the co-signer into default. When this happens the full balance on the loan is due immediately, which is clearly unmanageable in any household budget.

These three practices, which are not allowed for federal student loans should be prohibited for private student loans, relieving Maine borrowers of financial harm that lasts for decades. For these reasons MECEP is supporting LD 1645, “An Act to Establish Protections for Private Student Loan Borrowers and a Registry of Lenders,” that is currently under consideration by the Maine legislature’s committee on health coverage, insurance and financial services and would close the door on these practices.


[1] Student Borrowers Protection Center. Fact Sheet, “Maine Private Student Debt by the Numbers”.