Student Loans – Student Loan Servicing Program
About the Department of Financial Protection and Innovation
The Department licenses student loan servicers operating in California. As part of this program, the DFPI accepts complaints from borrowers and enforces violations of the Student Loan Servicing Act. The Legislature approved the program in Assembly Bill 2251, which was signed into law by Gov Edmund G. Brown Jr. in 2016.
The statute established state standards to ensure consistent, fair, and quality servicing for the more than 4 million Californians who have student loans. This page is a resource for student loan servicers to get clarification on what is covered by current student loan servicing law, find information about applying for a license with DFPI, and more.
Frequently Asked Questions – Student Loan Servicing (SLS) Act Requirements
The Department licenses and regulates student loan servicers operating in California. The Student Loan Servicing Act (SLS) and all subsequent laws have established state standards to ensure consistent, fair, and quality servicing for the more than 4 million Californians who have student loans.
Below are answers to some of the most common questions about the requirements of the Student Loan Servicing Act. If you have additional questions, please email us at StudentLoanServicing@dfpi.ca.gov.
Information on SLS licensing requirements is also available on NMLS, which allows companies to conveniently manage their student loan servicer license(s) through a secure website. View state student loan servicer licensing requirements specific to the California Department of Financial Protection and Innovation.
Who is required to obtain a license or branch license?
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:
- Performing both of the following:
- Receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment.
- Applying payments to a borrower’s account pursuant to the terms of the student loan or the contract governing the servicing.
- During a period when no payment is required on a student loan, performing both of the following:
- Maintaining account records for the student loan.
- Communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note.
- 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.
Who is excluded from licensing requirements?
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.”
Which student loan activities are covered?
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.
What are the licensing requirements?
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:
|Dollar Amount of Loans Serviced||Bond Amount|
|$50,000,001 – $100,000,000||$50,000|
|$100,000,001 – $250,000,000||$75,000|
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 StudentLoanServicing@dfpi.ca.gov.
If I already have a California DFPI license with a different program, do I need a Student Loan Servicing License as well?
Yes, you will need a separate Student Loan Servicing License.
How are electronic information or forms transferred to the DFPI?
While most material will be submitted through NMLS, information can also be sent to StudentLoanServicing@dfpi.ca.gov 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 StudentLoanServicing@dfpi.ca.gov.
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.
What are the requirements after a license has been issued?
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.
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.
What is the examination process?
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.
Frequently Asked Questions – License Application Process
Below are answers to some of the most common questions regarding the student loan servicer license application process. Please contact us at StudentLoanServicing@dfpi.ca.gov for additional assistance or questions regarding issues with your student loan servicer license.
How do I apply for a Student Loan Servicer License?
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.
How do I apply for a Branch Office License?
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.
How do I amend a Student Loan Servicer License or Branch Office License?
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.
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.
How do I surrender a Student Loan Servicer License or Branch Office License under the SLS?
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 StudentLoanServicing@dfpi.ca.gov. 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.
How long does it take to process a background check?
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.
Student Loan-Related Laws
- Assembly Bill 2251 (Stone, Chap. 824, Stats. 2016)
This bill adds a new Division, the “California Student Loan Servicing Act,” to the Financial Code. The Act requires servicers to adhere to specified borrower protections when servicing student loans. The bill also expands the authority of the Commissioner of the Department of Financial Protection and Innovation to include the licensure, regulation, and oversight of student loan servicers. This bill prohibits a person from acting as a student loan servicer without a license, unless exempt.
- Assembly Bill 461 (Muratsuchi, Chap. 525, Stats. 2017)
This new law excludes from gross income, for taxable years 2017 through 2021, student loan debt that is canceled under income-contingent repayment plans for public service and other employees administered by the U.S. Secretary of Education.
- Assembly Bill 1178 (Calderon, Chap. 448, Stats. 2017)
This new law requires, commencing with the 2018-19 award year, that each higher education institution, except for the California Community Colleges, to the extent possible, send an individualized letter to their students regarding information on their student loans.
- Assembly Bill 38 (Stone, Chap 379, Stats. 2018)
This bill amends the Student Loan Servicing Act to clarify who is covered under the Student Loan Servicing Act, and to streamline the process for licensing and regulating student loan servicing in California. Among other things, the bill exempts guaranty agencies engaged in default aversion and debt collectors, as defined.
- Assembly Bill 3212 (Irwin, Chap 555, Stats. 2018)
This bill expands the service members who are entitled to certain protections in the Military and Veterans Code when on active military duty. The bill also expands the protections available to active service members regarding financial and other obligations including student loans.
- Assembly Bill 376 (Stone, Chap 154, Stats 2020)
Known as the “Student Borrower Bill of Rights”, this bill expands borrower rights in the following ways:
- Loan servicers must provide accurate information about your repayment This includes giving information about expanded protections available to borrowers who may qualify for special benefits, such as public servants and people with disabilities.
- Servicers must provide clear answers to your questions. Servicers must give accurate information about their repayment options to avoid defaulting on their loans.
- Servicers and lenders must minimize their fees. Fees are capped at 6% of the outstanding amount.
- Servicers must apply all payments in a way that helps reduce the overall cost of the loan. This helps to minimize any fees or interest charges.
- Servicers must process and post payments in a timely fashion. Overpayments must be posted and processed in the best financial interest of the borrower.
- Servicers must maintain accurate records. Loan servicers must have better records management, process paperwork on time, and diligently oversee their service providers.
- Servicers must not engage in deceptive or abusive practices in connection with loan servicing. A borrower has the right to legal action against their servicer if they fail to comply with these laws. This is called a ‘Private Right of Action’ and allows borrowers to collect damages and restitution.
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