Student loan debt collectors have been accused of deceiving and abusing student borrowers and have been sued by attorneys general in a handful of states. Now, they may be getting some relief.
The debt collectors, that is. Not their customers.
In an internal document obtained by NPR, the U.S. Department of Education, under Secretary Betsy DeVos, argues that the nation’s loan servicers should be protected from state rules that may be far tougher than federal law.
“Congress created and expanded the Direct Loan Program with the goal of simplifying the delivery of student loans to borrowers, eliminating borrower confusion, avoiding unnecessary costs to taxpayers, and creating a more streamlined student loan program,” the memo reads. “Recently, several States have enacted regulatory regimes or applied existing State consumer protection statutes that undermine these goals.”
The memo, which was first reported by Bloomberg, has not been officially released; it marks the latest move by the Trump administration to align itself with debt collectors over the nation’s 44 million student loan borrowers.
In August, the Education Department announced it would also stop collaborating with the Consumer Financial Protection Bureau in its oversight of loan servicers. That’s after the CFPB had put the student loan industry on notice by suing the nation’s largest servicer, Navient. The federal watchdog accused Navient of mismanaging borrower payments and steering struggling borrowers into costly plans. The company denied those charges. With the CFPB increasingly sidelined, states argue the job of policing loan servicers has fallen to them.
“This is a radical change,” says Christopher Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB. In the past, he notes, the Department of Education had worked with federal and state regulators to protect student borrowers and regulate student lenders.
But under the Trump administration and DeVos, the department ended an information-sharing arrangement with the CFPB — making it harder for the bureau to police the industry, Peterson says.
“And now we’re finding out that the Trump administration is also going to attempt to shut down all oversight and regulation by state governments,” he says. “It appears that the Trump administration doesn’t want anyone to focus on whether the debt collectors are treating student loan borrowers fairly.”
States have adopted a wide range of requirements to constrain servicers. States may impose additional fees, deadlines, transparency requirements and limits on how far companies can go to collect repayment. Many states have also created a student loan ombudsman to investigate borrower complaints. Illinois passed a student loan bill of rights.
The newly obtained memo, if entered into the Federal Register, would not have the force of law. However, it would put the federal government on the side of complaints by servicers that states require too much of them and that the servicers can’t possibly comply with 50 different sets of rules. Last summer, the Education Finance Counciland the National Council of Higher Education Resources — two groups that represent the interests of student loan companies — implored DeVos to weigh in on this increasingly bitter fight between states and loan servicers.
“I am writing to express my concern with the growing tendency of state entities to seek to impose state-level laws and regulations on student loan servicers,” wrote the EFC’s president, Debra Chromy. “If left unchecked, these state efforts will continue to add an unnecessary web of regulations which are both duplicative of and potentially contradictory to existing federal regulations and policies.”
In the new memo, the department agrees, arguing that state efforts to police servicers are pre-empted by federal law, namely the Higher Education Act. These state-led efforts to rein in servicers ultimately hurt taxpayers, the memo argues.
The Justice Department offered a similar argument when it recently weighed in on a Massachusetts lawsuit against a student loan servicer. And, late last year, House Republicans attempted to pass legal protections for servicers from tougher state laws in a rewrite of the Higher Education Act.
But this fight does not always follow traditional political lines.
A bipartisan group of 26 state attorneys general — including reliably conservative Montana, Tennessee, Kansas and Texas — wrote to DeVos in October, urging her to “reject an ongoing campaign by student loan servicers and debt collectors to secure immunity for themselves from state-level oversight and enforcement.”
“There is no principled reason for the Department to weaken or box out states just as our combined federal-state efforts against abusive practices in the student loan servicing industry have begun to bear fruit,” the attorneys general wrote. “Nor is there any justification to seek to interfere with the traditional police power of states to protect their own residents from abuses in the marketplace.”
Massachusetts Attorney General Maura Healey told NPR: “What this memo signals is that they want to stop states like Massachusetts and my office from holding companies accountable for ripping off students with predatory loan servicing practices.”
Pro-consumer groups also expressed concern about the proposal.
“Once again, the Department of Education has revealed that it is on the side of companies instead of standing by borrowers and their families,” Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending, said in a statement. “Acting at the behest of servicers and their lobbyists denies an opportunity for comment by the 44 million Americans who share the burden of a still-growing $1.4 trillion in student loan debt.”