Published On: Tue, Sep 14th, 2021

Biden administration revokes Trump rule on student loan oversight, paves way for investigations

The Biden administration has revoked a Trump-era rule that client advocates argued allowed the Education Department to subvert state regulation enforcement probes of student loan servicers — certainly one of a sequence of latest overhauls that might pave the way for extra sturdy investigations.

In a brand new letter obtained by NBC News, a bunch of Democratic senators are expressing assist for Education Secretary Miguel Cardona for the most recent reversal that tightens oversight of the student loan servicing business, however in addition they imagine the division should go additional to make sure states have the total backing of the federal authorities to carry loan corporations accountable.

The Trump administration’s coverage, posted within the Federal Register in March 2018, “interfered with state regulators exercising their authority to protect consumers in their states,” the eight lawmakers, led by Sen. Elizabeth Warren, D-Mass., and Sen. Sherrod Brown, D-Ohio, wrote to Cardona.

The revised interpretation, which went into impact final month, “is not only legally sound, but will also have substantial benefits for borrowers,” the senators added. “State attorneys general have been at the forefront of oversight of student loan servicers in recent years, uncovering widespread patterns of misleading and abusive conduct and winning significant settlements for borrowers in their states.”

A Consumer Financial Protection Bureau report in June reaffirmed that servicers have “engaged in unfair acts or practices related to providing inaccurate monthly payment amounts to consumers after a loan transfer” and “regularly provided inaccurate information about eligibility for [Public Service Loan Forgiveness] or Direct Consolidation Loans, resulting in deceptive acts or practices.”

Roughly 43 million debtors maintain a ballooning $1.5 trillion in student loan debt, federal statistics present, with college students of shade extra more likely to take on such debt and disproportionately struggling to pay it again. Since President Joe Biden took workplace this yr, he has worn out practically $10 billion price of student loan debt, most lately for college students enrolled in a for-profit faculty that was accused of malfeasance and closed.

However, advocates for student debt cancellation, together with many Democratic senators, have referred to as on Biden to make use of his federal authority to do extra.

The latest coverage change spearheaded by Cardona is a pointy reversal of the agenda undertaken by former Education Secretary Betsy DeVos, who was accused of placing the for-profit faculty business and student loan servicers forward of serving to student debtors.

Under DeVos, the Education Department had argued that the federal authorities’s oversight pre-empted state rules when it got here to policing the student loan business, which Democratic lawmakers had stated allowed the administration to basically defend student loan servicing corporations.

The Student Loan Servicing Alliance, a commerce group, which had defended the Trump administration’s interpretation — saying it was “not just good law, it is good policy” — didn’t instantly reply to a request for remark Tuesday.

A bunch of Democratic attorneys basic — representing California, Colorado, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Virginia, and Washington, D.C. — despatched a joint letter to Cardona this week in assist of the most recent coverage change, however requested for clarification that “state laws regulating servicers are not preempted” besides in sure slender circumstances.

Cardona stated final month that “effective collaboration among the states and federal government is the best way to ensure that student loan borrowers get the best possible service.”

In their letter, the Democratic senators have requested him to make sure that the messaging is evident that student debtors will probably be protected.

“When servicers or other contractors take positions that obstruct Federal or state oversight, they should face consequences under their current contracts and in future allocations and renewals,” they wrote. “We strongly urge you to incorporate accountability for abusive and illegal consumer practices and for failure to cooperate with Federal and state regulators into the ongoing management of the student loan program.”

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