The Department of Education issued a new declaration into the federal register Friday morning that would curtail the ability of states to regulate student loan debt collectors.
For months, it had been rumored that the Trump administration was considering imposing the mandate, which is not an official rule, that would shield student loan servicers like Navient and Nelnet from state regulation. It would instead place the responsibility for regulating these companies on the federal government — which is what these companies have argued for in court.
The Education Department calls the language it issued an “interpretation,” which leaves it wide open to legal challenges from state prosecutors eager to take on student-lending firms.
The move comes at a time when attorneys general in several states are pursuing servicers for what they claim are abuses against student borrowers. On March 1, a superior court judge refused to dismiss a lawsuit filed by Massachusetts Attorney General Maura Healey against the Pennsylvania Higher Education Assistance Agency. Healey was suing it for, among other things, overcharging students.
The Trump administration, through the Department of Justice, argued that Healey does not have authority to sue; Justice Department officials argued that they were seeking to “preserve the important federal interests in cost-effectively and uniformly administering and streamlining the federal student loan programs.”
Healey said she was undeterred by the move from Education Secretary Betsy DeVos. “Secretary DeVos can write as many love letters to the loan servicing industry as she wants, I won’t be shutting down my investigations or stand by while these companies rip off students and families,” Healey said in a statement to The Intercept. “The last thing we need is to give this industry a free pass while a million students a year are defaulting on federal loans.”
The American Federation of Teachers, which is the largest union that organizes higher education workers, offered a similar take. “DeVos’ actions will make it harder for people to access higher education,” AFT President Randi Weingarten said. “With this move, she has castrated any state legislators and attorneys general from providing meaningful oversight of student loan services, yet she continues to fail to do so herself.”
The National Council of Higher Education Resources – a trade group that represents the student loan servicer industry – however, had praise for Devos’s move.
“NCHER and its membership have long believed that the federal student loan programs – both the Federal Direct Loan Program and the Federal Family Education Loan Program – are national in scope and need to be administered uniformly throughout the 50 states,” James Bergeron, the group’s president, told The Intercept. Dealing with 50 different state laws and oversight officials creates a “regulatory maze” for companies, Bergeron said, and the new declaration will help create a more consistent playing field.
Update: March 9, 2018, 12:56 p.m.
This story has been updated with reactions to the declaration from Maura Healey, Randi Weingarten, and James Bergeron.