California Regulator Proposes Changes to Student Loan Servicing Laws


Pouneh Almasi, September 15, 2022

On August 30, the Commissioner of the California DFPI issued a notice of rulemaking proposing new regulations and amendments to current regulations implementing the state’s student loan servicing laws. The proposed regulations aim to implement the provisions of the Student Loan Servicing Act and the Student Loans: Borrower Rights law by:

  • clarifying that all education financing products—including traditional loans, income share agreements, and installment contracts—are student loans for purposes of regulation under the Student Loan Servicing Act and the Student Loans: Borrower Rights law;
  • clarifying that servicers of all education financing products must be licensed as student loan servicers under the Student Loan Servicing Act;
  • specifying that servicers of all education financing products must submit an annual report to the DFPI regarding the volume and dollar amount of all education financing products serviced during the previous year, on a form specified by the DFPI; and
  • revising certain existing regulations to remove requirements deemed unnecessary to reduce regulatory burden on student loan servicers.

According to the regulator, when the state began regulating student loan servicers in 2017 with the enactment of the Student Loan Servicing Act, student loans were comprised of federal and private student loans, most commonly made by banks and credit unions using traditional loan forms such as promissory notes and loan agreements. Since then, other education financing products have emerged, such as income share agreements and installment contracts, which use different documentation and terms distinct from those associated with traditional loans. This proposed law makes clear that these products are subject to California’s state licensure requirements on student loan servicers.

Members of the public can submit comments to the regulator on these proposed laws until October 28, 2022.

Putting It Into Practice: As we recently reported, the DFPI has recently found that income share agreements offered by a fintech company to finance higher education are student loans for purposes of licensure under the Student Loan Servicing Act. Given the recent activity by the California regulator, companies offering financing products for student loans should review the proposed regulations to see if their products would fall under the purview of the state’s licensing laws.