The federal government is making a mistake by siding with debt collectors over the 44 million Americans living under the sometimes crushing weight of student loans.
There is little legal basis for the U.S. Department of Education to declare that federal law pre-empts state efforts to crack down on deceptive practices by companies collecting payments on federal student loan debt. Yet that is what the Education Department asserted in a new policy statement this month, ignoring earlier warnings from 25 state attorneys general that such a move would exceed the federal agency’s authority.
Associations representing student-loan servicers requested the policy change last year as more states began enacting regulations and filing lawsuits to curtail what they alleged were unscrupulous industry tactics.
Washington has been among the states at the forefront of this fight. In January 2017, state Attorney General Bob Ferguson sued the nation’s largest student-loan servicer, Navient, for unfair practices he said misled borrowers about how much they had to pay and steered many toward payment options that would increase their long-term costs. Pennsylvania and Illinois have filed similar suits against Navient, while Massachusetts filed suit against another large servicer of student loans.
In a statement, Ferguson said Washington state’s lawsuit against Navient will continue.
But the new federal guidance poses a challenge to laws recently enacted in Washington and elsewhere to regulate student-loan servicers. Just last week, Washington Gov. Jay Inslee signed a bill, requested by Ferguson, to create licensing requirements for companies and add new borrower protections.
In his statement, Ferguson said he will defend the state’s new Student Loan Bill of Rights in court if necessary.
But it should not come to that. Instead, Education Secretary Betsy DeVos should heed Monday’s letter from a group of state lawmakers asking her to rescind her department’s March 12 policy memorandum. Six lawmakers from Washington signed onto the letter, along with 15 legislators representing 12 other states and Washington, D.C.
With President Donald Trump’s administration rolling back protections for student borrowers on multiple fronts, these efforts by states are becoming more important than ever.
The federal government should be encouraging this important work to protect consumers, rather than squelching states’ attempts to regulate companies whose business practices can contribute to people remaining in the purgatory of long-term debt.
— The Seattle Times