DeVos Education Department Acts to Prevent States from Protecting Student Loan Borrowers: What Our Partners and Allies Think
On March 12, 2018, Secretary Betsy DeVos’ Department of Education formally released a memo containing its legal-interpretation on the ability of states to regulate or litigate against student loan companies. While not legally-enforceable, under this new directive, the Department would declare that states do not have the authority to regulate federal student loan servicers, and that only the federal government has the right to do so.
This move by the Department is not surprising, given Secretary DeVos’ family connections to debt collection, let alone her proclivity to work against students’ interests while rationalizing those actions as helpful. But the only people she helps by arguing against states’ right to enact consumer protections – the kind seen in a “Student Loan Borrower’s Bill of Rights” – is only helping student loan companies make profit off of borrowers through deceptive and exploitative practices.
One of the first actions Secretary DeVos took after being narrowly confirmed as Secretary was rolling back key regulations that protected borrowers with federal student loans. DeVos rescinded basic requirements for customer service and loan management that protected the rights of borrowers. In light of these actions, multiple states have stepped up to ensure that large student loan companies like Navient, NelNet, Great Lakes, and others do right by federal loan borrowers.
The consequence of this new directive on the fight to protect student loan borrowers is that the county’s largest financial companies and their lobbyists will attempt to use DeVos’s legal opinion confuse state leaders considering these consumer protections. However, states are empowered under current law protect consumers in order prevent the kind of financial practices by private firms that led to the 2009 Recession.
Many consumer and students’ rights advocates have reacted strongly to this move by DeVos, as seen by what some of our partners had to say:
Full statements accessible via hyperlinks where available.
From AFT’s report on the trade lobbying organization representing student loan servicers and debt collectors that intends to undermine state sovereignty on student loan borrower protection using the DeVos memo:
“Under the guidance of Education Secretary Betsy DeVos, the Department of Education has abdicated its responsibility to protect student loan borrowers and provide meaningful oversight of its contracted student loan services. Now that the primary regulator has abandoned its most basic commitment to more than 40 million student loan borrowers, it is incumbent on states and state attorneys general to take immediate action to clean up the mess left behind and prevent a financial catastrophe on the scale of the mortgage crisis.”
“At a time when Secretary Betsy DeVos has consistently turned her back on students by rescinding memos and re-writing rules meant to protect them, states are a crucial backstop for protecting students… The ability for states to enact laws governing how servicers may interact with borrowers, and the ability of state Attorneys General to file lawsuits against servicers for consumer abuses, are crucial accountability mechanisms that must continue.”
Center for Responsible Lending Policy Counsel, Whitney Barkley-Denney
“Once again, the Department of Education has revealed that it is on the side of companies instead of standing by borrowers and their families. 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… This kind of caving to special interests abandons the Department’s duty to be a thrifty steward of the public purse. Consumers are entitled to support and response from all levels of government. Hence, states must preserve their ability to protect borrowers residing in their respective jurisdictions. There is simply no precedent or provision for such a federal fiat.”
Consumers Union Senior Attorney, Suzanne Martindale
“States can and should act to protect borrowers from unfair student loan servicing practices that make it more difficult to manage their debts responsibly… Far too many borrowers get the runaround from loan servicers who fail to maintain accurate records, provide inconsistent information, or simply refuse to help them resolve problems. If states are prevented or discouraged from overseeing education loan servicers, borrowers may be left with virtually no protections against harmful practices that can push them deeper in debt.”
National Consumer Law Center Student Loan Borrower Assistance Project Director, Persis Yu
“The Education Department’s purported guidance is contrary to recent court decisions in Massachusetts and Washington and 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… “The idea that stopping misrepresentations [by servicers] conflicts with federal law or is too costly to taxpayers should be taken as a slap in the face to the 43 million taxpayers who also owe federal student loan debt.”
From the TICAS Twitter account:
“In light of lax federal standards currently in place, states have felt compelled to put in place minimum standards for servicers. Three states have greater protections on the books and many more states are considering them.”
“A bipartisan group of 25 state [Attorneys General] told [the Department of Education]: ‘There is no principled reason…to weaken or box out states just as our combined federal-state efforts against abusive practices in [student loan] servicing industry have begun to bear fruit.'”
“While federal government falls short, we urge states to continue efforts to protect [student loan] borrowers from low-quality servicing.”
“The Education Department’s interpretation clears the path for predatory lenders and institutions to continue taking advantage of students seeking higher education… If carried out, the Department’s misguided guidance will give free rein to bad actors that have taken advantage of students. The Consumer Financial Protection Bureau has received over 60,000 complaints from students over misinformation and mistakes in their loan servicing.”
Young Invincibles Midwest Director, Erin Steva
“It’s disappointing, but not surprising… The Department of Education under Secretary DeVos has routinely shaped policy to benefit institutions and businesses that profit off of students and borrowers. This is just another step to remove consumer protections, whether it be the illegal suspension and ongoing erosion, of the Gainful Employment rule or the Borrower Defense rule or removing state protections that prevent students and borrowers from being ripped off.”
Posted on 13 March 2018