SEO Headline (Max 60 characters)

States Seek Education Department's Help in Regulating Loan Servicers

March 10, 2021
 
 

Officials from 11 states on Tuesday asked Education Secretary Miguel Cardona to reverse two Trump administration policies that they say keeps them from being able to regulate private servicers of student loans.

State financial regulators, including New York Department of Financial Services superintendent Linda Lacewell, wrote Cardona that states have passed laws requiring servicers to be licensed and follow certain consumer protection standards.

“For years there have been instances of servicers providing inaccurate information or engaging in harmful misconduct, often resulting in increased costs and extended repayment periods for borrowers,” the regulators wrote.

However, the Education Department under then-Secretary Betsy DeVos passed policies tying the states’ hands. In 2018, the department issued a guidance document asserting that federal law pre-empts states from regulating the servicers. The department under DeVos and loan servicers also took the position that the federal Privacy Act of 1974 prohibits student loan servicers from sharing certain information with the states.

Whereas the Obama administration shared information on the practices of servicers with states, “the DeVos-era Department of Education often simply refused to produce such data, severely hampering states' consumer protection efforts in the student loan industry,” the regulators wrote.

“These misguided and unsound policies inhibit states’ abilities to oversee this servicing industry in the midst of a student loan debt crisis,” the letter said.

Regulators from California, Colorado, Connecticut, Illinois, Maine, Massachusetts, New Jersey, New York, Rhode Island, Washington and Wisconsin signed the letter.

“We share these states’ commitment to protecting student loan borrowers," said Education Department spokeswoman Kelly Leon. The department is examining its policies regarding the loan servicers "to ensure that states can be strong partners in ensuring accountability," she said.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said servicers worry that states will create a hodgepodge of different rules around the country. "What's important here is having a single and consistent set of rules so everyone is clear on how to best help borrowers be successful," he said.

We have retired comments and introduced Letters to the Editor. Letters may be sent to [email protected].

Read the Letters to the Editor  »

 

Opinions on Inside Higher Ed

Inside Higher Ed’s Blog U

Back to Top