The Department of Education is possibly taking steps to protect student loan servicers that are accused of misleading borrowers.
The Trump Administration may be taking steps to protect student loan servicers that are accused of misleading borrowers.
Education Secretary Betsy DeVos has drafted a “notice of interpretation” stating that only the federal government has the power to regulate federal student loan servicers, not states, Bloomberg reported. This proposal would aim to block states from passing laws intending to regulate student loan servicers.
According to Mick Mulvaney, the head of the Consumer Financial Protection Bureau (CFPB), the previous administration was overzealous in its effort to regulate student loan servicers. Mulvaney pointed to federal data that shows that over one million borrowers default on their federal student loans every year.
However, this proposal from the Trump Administration is being met with criticism from student loan advocates and state regulators.
Whitney Barkley-Denney, a lawyer at the Center for Responsible Lending, said she was unsurprised the administration was acting on behalf of the student loan companies.
"Once again, the Department of Education has revealed that it is on the side of companies instead of standing by borrowers and their families," Barkley-Denney said in a statement.
This proposal comes during a time when many states are attempting to tighten legislation around how student loan servicers can interact with borrowers. Dozens of states have either passed or are considering passing laws that tighten regulations on student loan companies.
And attorneys general in several states filed lawsuits against different servicers. Notably, Navient has been the subject of lawsuits in several states such as Washington and Pennsylvania. However, companies like Navient have argued that these lawsuits should be dismissed since federal laws preempt state laws.
A Navient spokesperson did say that the company planned to work with state lawmakers. Meanwhile, the National Council of Higher Education Resources, a group that represents student loan servicers, has requested that the Department of Education block these attempts by the states.
The Department of Education currently uses nine companies to service student loans to borrowers. And traditionally, the department would ask contractors to stop doing certain practices rather than taking them to court.
According to the department, any fees incurred by student loan servicers are automatically passed on to the federal government. The document concluded that this could "…implicate uniquely federal interests."
If the Department of Education follows through with this proposal, it could give borrowers fewer options in how they deal with their student loan servicers.
If borrowers are experiencing difficulty with their servicer, it is a good idea to keep records of all correspondence. They can also reach out to the Ombudsman Group, a third-party organization that helps borrowers resolve issues with their federal loans.