by Barbara Nevins Taylor
Who protects student loan borrowers? The Trump administration just told states to back off consumer protections and the states and consumer advocates said, “Wait a minute.”
The conflict arose because states like Massachusetts, Washington and New York enacted laws and rules to protect student loan borrowers from loan servicer predatory practices. In 2017, Washington sued Navient, an offshoot of Sallie Mae, and charged the company with unfair and deceptive practices.
Recently, Massachusetts sued the Pennsylvania Higher Assistance Corporation, which manages student loans and grants on behalf of the government. The U.S. Justice Department challenged the state’s right to sue, but a Massachusetts Superior Court judge ruled that Massachusetts can go forward with the lawsuit.
In the latest salvo, the U.S. Department of Education posted a notice of new guidelines aimed at preventing states from regulating loan servicers. It said state regulation is “preempted by Federal law.” It also says, “State servicing laws also may undermine Congress’s goal of saving taxpayer dollars in administering the Direct Loan Program.”
State officials and consumer advocates reacted angrily. New York’s Financial Services Superintendent Maria Vullo said, “The U.S. Department of Education’s attempt to undermine states’ protections for student loan borrowers exceeds the scope of authority Congress granted to the Department of Education, disrupts states’ traditional role of protecting their residents and regulating financial services providers, and would harm the very borrowers the Department should be aiming to protect.”
The New York State Department of Financial Services (DFS) has mediated complaints about fraudulent and abusive practices, including steering borrowers to costlier repayment plans. Vullo said, “Now more than ever, with the federal assault on our struggling middle class, states must retain the ability to rein in these troubling practices in order to protect students and student debt holders within their own borders.”
The National Consumer Law Center’s Persis Yu said the Education Department’s effort “. . . is an outrageous effort to protect unfair and deceptive actions by student loan servicers and to deprive borrowers of their right to prompt, accurate, and timely service on their student loans,” Servicers and collectors who mistreat student loan borrowers and steer them into inappropriate payment plans should not be above the law,”
In a letter to Education Secretary Betsy DeVos, the Conference of Bank Supervisors wrote that the effort to override state protections “. . . runs counter to the Congressionally mandated state federal balance in financial regulation and exceeds the Department’s authority.”
So you can stay tuned to see if anyone ends up protecting people who need it most.
