Student Loan Servicers

Entities that perform the following activities are required to get a license. Subject to limited exclusions, the Act prohibits a person from engaging in the business of servicing a student loan in this state without a license. The act of servicing includes any of the following activities related to a student loan:

1. Performing both of the following:
   1. Receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment.
   2. Applying payments to a borrower’s account pursuant to the terms of the student loan or the contract governing the servicing.
2. During a period when no payment is required on a student loan, performing both of the following:
   1. Maintaining account records for the student loan.
   2. Communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note.
3. Interacting with a borrower related to that borrower’s student loan to help the borrower avoid default on his or her student loan or facilitate the activities described in paragraphs 1 or 2.

The following are excluded from licensing requirements:

• A bank, trust company, or industrial loan company authorized to transact business in this state.
• A federally chartered savings and loan association, federal savings bank, or federal credit union that is authorized to transact business in this state.
• A savings and loan association, savings bank, or credit union that is authorized to transact business in this state.
• A public postsecondary educational institution or a private nonprofit postsecondary educational institution servicing a student loan is extended to the borrower.
• A nonprofit community service organization that meets all the criteria of Financial Code Section 12104.
• In connection with its responsibilities as a guaranty agency engaged in default aversion, a state or nonprofit private institution or organization having an agreement with the United States Secretary of Education under Section 428(b) of the Higher Education Act of 1965 (20 U.S.C. Sec. 1078(b)).
• A “student loan servicer” does not include a debt collector, as defined in Section 1788.2 of the Civil Code, whose student loan debt collection business, and business operations, involve collecting, or attempting to collect, on defaulted student loans, that is, federal student loans for which no payment has been received for 270 days or more, or private student loans, in default, according to the terms of the loan documents. Debt collectors who also service non-defaulted student loans, as part of their business, and business operations, are “student loan servicers.”

A “borrower” means either a person who has received or agreed to pay a student loan or a person who shares responsibility for repaying the loan. Covered servicing includes activity that originated in California and is directed to persons in or outside of California or originated outside of California and is directed to persons inside California. Information about the number of borrowers and the volume of loans serviced will be required during the initial licensing process, and annually thereafter.

Net Worth Requirements

Audited financial statements prepared in accordance with Generally Accepted Accounting Principles that indicate a net worth of at least $250,000 must be submitted at the time of application. Licensees must continuously maintain a minimum net worth of $250,000.

Surety Bond Requirements

SLS licensees must maintain a surety bond payable to the commissioner and issued by an insurer authorized to do business in this state. The bond amount is based on the dollar amount of servicing activities conducted by the licensee in the preceding calendar year, as follows:

For licensees with multiple licensed locations, only one surety bond is required.

Supplemental Borrower Information

Information on borrower activity, as described in the Covered Student Loan Borrowers section, is required as part of the Company Checklist in NMLS (MU1 Form). Information should be submitted using the Supplemental Request for Information (DFPI–SLS 100 form). This form is not submitted through NMLS but must be submitted through secure email at [email protected].

Yes, you will need a separate Student Loan Servicing License.

While most material will be submitted through NMLS, information can also be sent to [email protected] using a secure email system. If your company does not already have access to a secure email system, please send a request to establish a secure link to [email protected].

For large files and examination information, a secure portal has been set up using Microsoft 365 One Drive. Please use the above email address to request a link be opened. This does require a Microsoft account. If you do not already have one, instructions on how to establish an account will be sent with the link.

Annual Reporting Requirements

A licensee shall file an annual report with the Commissioner, on or before March 15, giving the relevant information that the Commissioner reasonably requires concerning the business and operations conducted by the licensee in the state during the preceding calendar year. The form will be available within the DFPI Self Service portal at least 90 days before the due date.

Annual Assessment

On or before September 30 each year, the Commissioner shall notify each licensee of the amount assessed and payable by the licensee. The assessment is due and payable through the NMLS system by October 31. A licensee shall be assessed a minimum of $250 per licensed location, plus a pro-rata share of the cost and expenses, as estimated by the Commissioner, for the ensuing year, and any deficit incurred or estimated in the year in which the assessment is made. All new licensees will need to provide information about borrower activity volume as of December 31 of the preceding year, for the current year’s assessment.

Audited Financial Statements

All licensees must submit audited financial statements within 105 days of the end of their fiscal year. The report filed with the Commissioner shall be certified by the independent certified public accountant who conducted the audit. The audited financial statements must document that the licensee maintains a tangible net worth of $250,000. The audited financial statements must be uploaded through the NMLS system.

Each licensee is subject to a regulatory examination by the Department, whether or not any business has been conducted under the license. Examinations will be conducted as often as the Commissioner deems necessary and appropriate, but at least once every 36 months. The licensee is responsible for the cost, including travel expenses, of the examination. Licensees will receive a written request for information to be transmitted to the DFPI through a secure portal prior to the start of the examination.

All license applications are filed electronically through the NMLS system. Please refer to the New Application Checklist posted on the NMLS Resource Center.

All stockholders, principal officers, and directors must have a background check. This includes obtaining criminal history information from the Department of Justice and conducting civil court checks for previous involvement in fraud, embezzlement, or misappropriation of property.

Additionally, the DFPI requires all applicants to submit a $100 investigation fee and a $300 application fee. Applicants for a company license must pay all fees through NMLS. Fees may be paid by credit card or ACH transfer. All fees are paid through NMLS and are not refundable.

All information is expected to be submitted through the NMLS system except for fingerprints.

Each licensee who desires to engage in business at an additional location (branch office) must submit Form MU3 through NMLS at least 10 days prior to engaging in business at the new location and submit a $100 investigation fee and a $300 application fee. Applicants for a branch license must pay all fees through NMLS.

Company Amendments

All amendments must be filed through NMLS by amending Form MU1. If there is a change of control or ownership, each individual must also file Form MU2. See the CA DFPI Student Loan Servicing Company Amendment Checklist for full details. There are no fees for company amendments.

Branch Amendments

All amendments must be filed through NMLS by amending Form MU3. Additionally, a change of Branch Manager Disclosure Question(s) requires filing through Form MU1 in NMLS. There are no fees for branch amendments.

See the CA DFPI Student Loan Servicing Branch Amendment Checklist for full details.

Licensees must notify the Department through NMLS that they intend to surrender an SLS Company license or Branch Office license. Submit any Dissolution Plan and Closing Audit documents as required per the surrender checklist through secure email at [email protected]. The commissioner shall give a licensee notice of accepting a surrendered license, and a license shall not be deemed surrendered until the commissioner accepts its tender in writing.

For full details, see the CA DFPI Student Loan Servicing Company Surrender Checklist or CA DFPI Student Loan Servicing Branch Surrender Checklist

The time needed to complete a background check depends on where the fingerprinting process is completed. California allows live scan electronic fingerprinting within the state. Background checks using this process take less time.

See below for estimated times:

• In-state – Five business days after the live scan is completed.
• Out of state – Up to 60 days from the date fingerprints are received by DOJ.
• Out of country – Undeterminable, time frame will vary based on the country.