The Biden administration repealed a Trump-era rule that consumer advocates said allowed the Education Department to overturn law enforcement investigations into student loan services – one of them a series of recent revisions that could pave the way for more robust investigations.
In a new letter obtained by NBC News, a group of Democratic senators express their support for Education Secretary Miguel Cardona for the latest reversal that strengthens oversight of the student loan servicing industry, but they also believe the department needs to go further to ensure that states have the full support of the federal government to hold loan companies accountable.
The Trump administration’s policy, published in the Federal Register in March 2018, “interfered with state regulators exercising their authority to protect consumers in their states,” the eight lawmakers, led by Senator Elizabeth Warren, D- Mass., And Senator Sherrod. Brown, D-Ohio, wrote to Cardona.
The revised interpretation, which entered into force last month, “is not only legally valid, but will also have substantial benefits for borrowers,” the senators added. “State attorneys general have been at the forefront of monitoring student loan services in recent years, uncovering widespread patterns of deceptive and abusive conduct and securing important settlements for borrowers in their states.”
A Consumer Financial Protection Bureau report in June reaffirmed that service providers have “engaged in unfair acts or practices related to providing inaccurate monthly payment amounts to consumers after a loan transfer” and “have consistently provided inaccurate information about eligibility for [Public Service Loan Forgiveness] or direct consolidation loans, resulting in deceptive acts or practices. “
According to federal statistics, approximately 43 million borrowers have $ 1.5 trillion in student loan debt, with students of color more likely to incur such debt and disproportionately struggle to pay it off. Since President Joe Biden took office this year, he has written off nearly $ 10 billion in student loan debt, most recently for students enrolled at a for-profit college accused of embezzlement and closed.
However, advocates for student debt cancellation, including many Democratic senators, have called on Biden to use his federal authority to do more.
The recent policy shift led by Cardona is a brutal reversal of the agenda undertaken by former Education Secretary Betsy DeVos, who has been accused of putting the for-profit university sector and student loan services before help student borrowers.
Under DeVos, the Education Department argued that federal government oversight took precedence over state regulations on policing the student loan industry, which Democratic lawmakers said allowed the administration to basically protecting student loan service companies.
The Student Loan Servicing Alliance, a trade group, which had defended the Trump administration’s interpretation – saying it was “not just good law, it’s good policy” – did not immediately respond to a request for comment Tuesday.
A group of Democratic Attorneys General – representing California, Colorado, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, La Virginia and Washington, DC – sent a joint letter to Cardona this week. in support of the latest policy change, but asked for clarification that “state laws governing maintenance services are not pre-empted” except in certain narrow circumstances.
Cardona said last month that “effective collaboration between the states and the federal government is the best way to ensure that student loan borrowers get the best possible service.”
In their letter, Democratic senators asked him to ensure the message is clear that student borrowers will be protected.
“When service providers or other contractors take positions that hamper federal or state oversight, they should face the consequences of their current contracts and future allocations and renewals,” they wrote. “We urge you to incorporate responsibility for abusive and illegal consumption practices and for the lack of cooperation with federal and state regulators in the ongoing management of the student loan program.”