DC Student Loan Servicer Bond: A Comprehensive Guide
April 12, 2021
This guide provides information for insurance agents to help student loan servicers obtain DC Student Loan Servicer Bonds
At a Glance:
- Average Cost: Between $500 to $6,250 per year based on the student loan servicer’s credit
- Bond Amount: $50,000
- Who Needs it: All student loan servicers seeking to obtain a license in the District of Columbia
- 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 DC: The District of Columbia Department of Insurance, Securities and Banking
Background
DC Statute 31.106.02 requires all student loan servicers operating in the district to obtain a license with the Department of Insurance, Securities and Banking. The DC 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 $50,000 surety bond to be eligible for licensure.
What is the Purpose of the DC Student Loan Servicer Bond?
DC requires student loan servicers to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the public will receive compensation for financial harm if the student loan servicer fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the student loan servicer breaks licensing laws.
How Can an Insurance Agent Obtain a DC Student Loan Servicer Surety Bond?
BondExchange makes obtaining a DC Student Loan Servicer Bond easy. Simply login to your account and use our keyword search to find the “student” 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.
Is a Credit Check Required for the DC Student Loan Servicer Bond?
Surety companies will run a credit check on the owners of the student loan servicing company to determine eligibility and pricing for the DC Student Loan Servicer bond. Owner’s with excellent credit and work experience can expect to receive the best rates. Owners 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 owner’s credit.
How Much Does the DC Student Loan Servicer Bond Cost?
The DC Student Loan Servicer surety bond can cost anywhere between $500 to $6,250 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 $50,000 bond requirement.
$50,000 Student Loan Servicer Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 720+ | $500 |
| 680 – 718 | $750 |
| 650 – 679 | $1,000 |
| 600 – 649 | $2,000 |
| 550 – 599 | $3,750 |
| 500 – 549 | $6,250 |
*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 DC Define “Student Loan Servicer?”
DC Statute 31-101 defines a student loan servicer as “a person or entity, whether located within or outside the District, responsible for the servicing of a student education loan of a student loan borrower.”
How do Student Loan Servicers Apply for a License in DC?
Student Loan Servicers in DC must navigate several steps to secure their license. Below are the general guidelines, but license applicants should refer to the NMLS’s application guidelines for details on the process.
License Period – The DC Student Loan Servicer License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Meet the Net Worth Requirements
Applicants for the DC Student Loan Servicer License must have a company net worth (assets – liabilities) of at least $250,000. Applicants must submit an audited financial statement verifying their net worth when submitting their license application.
Step 2 – Purchase a Surety Bond
Student loan servicers must purchase and maintain a $50,000 surety bond
Step 3 – Request a NMLS Account
The DC Student 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 DC Student Loan Servicer License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
-
- Audited financial statements indicating a company net worth of at least $250,000
- Company business plan containing the following information:
- Marketing strategies
- Products
- Target markets
- Fee schedule
- Operating structure the applicant intends to employ
- A Certificate of Registration obtained from the DCRA
- Company staffing and internal policies
- Company formation documents
- Management chart showing the company’s hierarchy
- Organizational chart showing company ownership structure
Applicants for the DC Student Loan Servicer License must pay an $1,100 fee when submitting their license application.
How Do DC 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 DC Student Loan Servicer License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the DC Student Loan Servicer License?
The District of Columbia does not require student loan servicers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Student loan servicers must purchase and maintain a $50,000 surety bond.
How Do DC 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 surety bond requires signatures from both the surety company that issues the bond and a representative from the student loan servicing company. The surety company should include the following information on the bond form:
- License type (student loan servicer)
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name
- Bond amount
- Date the bond goes into effect
- Date the bond is signed
What Can DC Student Loan Servicers Do to Avoid Claims Against Their Bond?
In order to avoid claims made against their bond, student loan servicers in DC must follow all license regulations in the district. 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 DC?
DC does not require student loan servicers to purchase any form of liability insurance as a prerequisite to obtaining a license. 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 DC Student Loan Servicer Customers?
The NMLS conveniently provides a public database to search for active student loan servicers in DC. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
