Education Dept., House Republicans attempt to block states from protecting student borrowers

Following a policy statement issued by the U.S. Department of Education last week and pending congressional legislation which would prohibit state regulation of federal student loan servicers, attorneys general from 30 states signed a letter to Capitol Hill leaders Thursday arguing against the move.

Since Betsy DeVos was confirmed as department secretary in February 2017, Education has sought to roll back loan practice oversight at the behest of industry lobbyists.  In response, some states instituted their own rules to protect borrowers against fraud and abuse.

While official guidance issued by DeVos on Friday, March 9, saying state laws governing federal student loans “impedes uniquely federal interests”, lacks an enforcement mechanism, a GOP-sponsored House bill to reauthorize the Higher Education Act would codify into law Education’s policy goal of deregulation.

The prospect of such a reform may concern student debtors, as recent cases of gross negligence on the part of private lending companies have been handled at the state-level in the form of investigations and lawsuits.

“States have a fundamental right to protect our residents from financial fraud and abuse,” New York Attorney General Eric Schneiderman said. “At a time when millions of Americans are struggling with student debt, we need more cops on the beat – not fewer.”

Two states, California and Connecticut, and Washington, D.C., currently have the strictest oversight of federal loan issuers, requiring private companies to be licensed and ensuring they also comply with federal law. Efforts to institute similar systems are underway in New York, New Jersey and Illinois.

To counteract the effort by mostly Democratic-controlled states, a lobbying firm that represents private student loan lenders wrote the Education Department in July 2017 encouraging the adoption of relevant federal oversight policy which preempts state laws.

The National Council of Higher Education Resources and the Education Department argue additional regulations implemented by states are unnecessary, overly complex and add to the cost of servicing student loans.

Issuance of the new official policy guidance comes less than a week before the Associated Press reported Thursday Education has informed some former students of the now-defunct Corinthian Colleges it will only forgive half of their loan debt.

A private, for-profit post-secondary education company, Corinthian Colleges Inc. was found to have defrauded students after an investigation by the Consumer Financial Protection Bureau in 2015.

 

[Washington Post] [AP via Seattle Times] [Photo courtesy Jacquelyn Martin/AP via NBC News]