Virginia Student Loan Servicer Bond: A Comprehensive Guide
March 4, 2021
This guide provides information for insurance agents to help student loan servicers on Virginia Student Loan Servicers Bonds
At a Glance:
- Average Cost: Between 1.5% to 7.5% of the bond amount per year based on the servicer’s credit
- Bond Amount: Determined on a case by case basis but not less than $50,000 and no more than $500,000
- Who Needs It: All individuals and business entities seeking to obtain a qualified education loan servicer license in the State of Virginia
- Purpose: To ensure the public will receive compensation for any damages should the student loan servicer fail to comply with licensing law
- Who Regulates Student Loan Servicers in Virginia: The Virginia State Corporation Commission
Background
Virginia Senate Bill 77 requires student loan servicers operating in the state to obtain a license with the State Corporation Commission. The Virginia legislature enacted the licensing laws and regulations to ensure that student loan servicers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, student loan servicers must purchase and maintain a student loan servicer surety bond to be eligible for licensure.
What is the Purpose of the Virginia Student Loan Servicer Bond?
Virginia requires businesses to purchase the Student Loan Servicer Bond as part of the application process to obtain a qualified education loan servicer license. The bond ensures that the public will receive compensation for financial harm if the business fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the business breaks licensing laws.
How Can an Insurance Agent Obtain a Virginia Student Loan Servicer Surety Bond?
BondExchange makes obtaining a Virginia Student Loan Servicer Bond easy. Simply login to your account and use our keyword search to find the “loan” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
How Does the Virginia State Corporate Commission Determine the Bond Amount?
The Virginia State Corporate Commission will determine the limit on the Virginia Student Loan Servicer Bond on a case by case basis. Virginia Senate Bill 77 mandates the limit be no less than $50,000 and no more than $500,000. When determining the bond amount, the State Corporate Commission will examine factors such as the loan servicer’s business financial statements, history of criminal activity, and the amount of loans the business services.
Is a Credit Check Required for the Virginia Student Loan Servicer Bond?
Surety companies will run a credit check on the owners of the loan service company to determine eligibility and pricing for the Virginia Student Loan Servicer bond. Applicants with excellent credit and work experience can expect to receive the best rates. Applicants with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the servicer’s credit.
How Much Does the Virginia Student Loan Servicer Bond Cost?
The Virginia Student Loan Servicer surety bond can cost anywhere between 1.5% to 7.5% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $100,000 bond requirement.
$100,000 Student Loan Servicer Bond
Table 1.2
| Credit Score | Bond Cost (1 year) |
|---|---|
| 800+ | $1,500 |
| 650 – 799 | $2,000 |
| 600 – 649 | $4,000 |
| 550 – 599 | $7,500 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
How Does Virginia Define “Student Loan Servicer?”
To paraphrase Virginia House Bill 7, a loan servicer is any individual or business entity who:
- Receives payments from a qualified education loan borrower and credits these payments to their account
- Maintains records of the borrowers loan payments and communicates with the borrower on behalf of the lender
- Helps the borrower avoid defaulting on their loan
How Do Student Loan Servicers Apply for a License in Virginia?
Student loan servicers in Virginia must navigate several steps to secure their Qualified Education Loan Servicer license. Below are the general guidelines, but student loan servicers should refer to the NMLS’s licensing instructions for details on the process.
License Period – The Virginia Qualified Education Loan Servicer license expires on December 31 of each calendar year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Student loan servicers must purchase and maintain a student loan servicer surety bond prior to submitting their license application
Step 2 – Mail the Required Documents to the Virginia State Corporation Commission
Student loan servicers will need to mail the following completed documents to the State Corporation Commission:
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- Criminal History Records Check and Fingerprint form
- Personal Financial Statement form
- Three business references from individuals in the student loan service industry who can attest the applicant’s moral character and business prowess
- Bank reference form
Step 3 – Request a NMLS Account
The Virginia Qualified Education Loan Servicer License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.
Step 4 – Complete the Application
All Virginia Qualified Education Loan Servicer License applications can be completed online through the NMLS. Applicants must complete entire the application, and submit the following items:
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- Financial statements
- A business plan which contains the following information:
- Marketing strategies
- Products
- Target markets
- Fee schedule
- Operating structure the applicant intends to employ
- Certificate of Authority
- A management chart detailing the applicant’s directors, officers, and managers
- Formation documents
- An organizational chart containing the following information:
- Direct Owners (total direct ownership percentage must equate to 100%)
- Indirect Owners
- Subsidiaries and Affiliates of the applicant/licensee
Student loan servicers must pay a $500 application fee when submitting their license application
How Do Virginia Student Loan Servicers Renew Their License?
Student loan servicers can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Virginia Qualified Education Loan Servicer license expires on December 31 of each calendar year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Virginia Qualified Education Loan Servicer License?
The State of Virginia does not require student loan servicers to obtain any form of liability insurance as a prerequisite to obtaining a Virginia Qualified Education Loan Servicer. Student loan servicers must purchase and maintain a student loan servicer surety bond.
How Do Virginia Student Loan Servicers File Their Bond?
Student loan servicers should submit the completed bond form, including the power of attorney, electronically through the NMLS. The student loan servicer surety bond requires signatures from both the surety company that issues the bond and the student loan servicer. The surety company should include the following information on the bond form:
- Bond amount
- Date the bond goes into effect
- Legal name and NMLS number of entity/individual(s) buying the bond
- Surety company’s name
- Date the bond is signed
What Can Student Loan Servicers Do to Avoid Claims Against the Virginia Student Loan Servicer Bond?
To avoid claims on the Student Loan Servicer Bond, student loan servicers must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Perform all written agreements pertaining to qualified education loans, correctly and accurately accounting for all funds received in connection with qualified education loans
- Do not engage in any acts of fraud
What Other Insurance Products Can Agents Offer Student Loan Servicers in Virginia?
Virginia does not require student loan servicers to obtain any form of liability insurance. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for Virginia Student Loan Servicer Customers?
The NMLS conveniently provides a public database to search for active student loan servicers in Virginia. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
