WASHINGTON, D.C. – On Monday, March 12, the Federal Register will include an interpretation by the Department of Education that state-level student loan servicing laws are preempted by Federal law. While the Department purports to affect loans made under Title IV of the Higher Education Act, this interpretation has no legal effect on state laws.

The non-binding memo asserts that state consumer protection statutes “undermine” federal regulator requirements. Citing a recent Massachusetts case, Massachusetts v. Pennsylvania Higher Education Assistance Agency, as an example of improper actions.

In response, Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending made the following statement:

Once again the Secretary DeVos is demonstrating more concern for student loan servicers like Navient than with the 44 million Americans who continue to struggle with a still-growing $1.5 trillion weight of student debt. Fortunately, the memo’s interpretation has no legal standing.

But the behind-the-scenes story is even worse. According to a just-released report by the American Federation of Teachers, former publicly funded state guaranty agencies like PHEAA, who are now acting as student loan servicers, have spent more than $2 million of state tax payer dollars to pay dues to the National Council of Higher Education Loan Resources (NCHER). NCHER, on behalf of these state-funded agencies, has spent the last six months lobbying against state laws that protect borrowers. In other words, perhaps unwittingly, states have been funding an organization working with the Department of Education to undermine their own laws – and their ability to enforce them.

When more than one-fourth of all student loan borrowers – 11 million consumers – are past due or in default on a student loans -- state efforts to resolve payment schedules, servicer errors and enrollment in income-based repayment plans are sorely needed. Due to racial disparities in income and wealth, the consumers hardest hit by these debts are those of color. While the federal government continues to find ways to placate these companies, states are ready and willing to serve the best interests of borrowers and taxpayers.

The Center for Responsible Lending believes that state guaranty agencies who are members of NCHER should withdraw their membership and focus exclusively on protecting borrowers in their state.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Charlene Crowell at charlene.crowell@responsiblelending.org.