STUDENT LOAN INDUSTRY CLASHES WITH 25 STATES OVER INVESTIGATIONS
October 25, 2017
COMMENTARY BY NEWPSTER STAFF

https://www.msn.com/en-us/news/us/student-loan-industry-clashes-with-25-states-over-investigations/ar-AAu08ue?li=BBnb7Kz

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In this Oct. 13, 2017 photo, Education Secretary Betsy DeVos speaks during a dinner hosted by the Washington Policy Center in Bellevue, Wash.

© AP Photo/Ted S. Warren In this Oct. 13, 2017 photo, Education Secretary Betsy DeVos speaks during a dinner hosted by the Washington Policy Center in Bellevue, Wash.

NEW YORK — The U.S. student loan industry is trying to derail state investigations of allegedly abusive practices by asking the Department of Education to issue formal guidance saying federal law preempts state probes, a bipartisan group of 25 attorneys general claim.

NEW YORK — The U.S. student loan industry is trying to derail state investigations of allegedly abusive practices by asking the Department of Education to issue formal guidance saying federal law preempts state probes, a bipartisan group of 25 attorneys general claim.

States including Texas, New York, Kansas and California on Tuesday sent a letter urging Education Secretary Betsy DeVos to reject the requests by at least two national industry groups, arguing that their probes have been effective in returning tens of millions of dollars to borrowers.

“These requests defy the well-established role of states in protecting their residents from fraudulent and abusive practices,” the states said in the letter. “The department cannot sweep away state laws that apply to student loan servicers and debt collectors.”

The dispute may highlight the Trump administration’s strategy for dealing with the vast ecosystem that feeds on federal student loans, including debt servicers, refinance lenders and debt collection agencies. As the debt balloons, so does the opportunity for abuse.

As of June 30, more than 7 million former students were in default on a record $144 billion of federal loans among borrowers trying to repay more than $1.3 trillion in government-backed education debt. Last year, 1.1 million borrowers defaulted on loans made directly by the Education Department.

States have had some success in recent years investigating wrongdoing in higher education, including winning $103 million in loan forgiveness as part of a Justice Department settlement with Education Management Corp. over the school’s allegedly misleading statements to students. DeVry University issued $100 million in refunds and debt forgiveness following a similar probe by a coalition of states and the Federal Trade Commission.

“We cannot allow student-loan servicers to sidestep state law and oversight and deny students and borrowers these vital protections from student-loan abuses,” New York Attorney General Eric Schneiderman said in a statement.

The Education Department received letters from groups, including the National Council of Higher Education Resources, saying that while they support high-quality loan servicing for borrowers, state probes needlessly replicate efforts by the federal government, including the Consumer Financial Protection Bureau.

But the Education Department in August told the CFPB it would stop sharing information with the agency, and the FTC historically hasn’t pursued student loan servicers. If states are taken out of the equation, that could leave DeVos to police the nation’s second biggest consumer debt market, after home mortgages. DeVos’ department spends about $1.5 billion annually on contracts with companies to collect student loan debt.

Pam Shepherd, a spokeswoman for the NCHER, didn’t immediately respond to a request for comment.

“If left unchecked, these state efforts will continue to add an unnecessary web of regulations which are both duplicative of and potentially contradictory to existing federal regulations and policies,” Debra J. Chromy, president of the Education Finance Council, said in another letter to the department.

Attorneys general in Illinois, Pennsylvania and Washington each have sued Navient Corp., one of the nation’s largest student loan companies, for allegedly violating state consumer protection laws by steering borrowers into short-term plans that postpone their required payments, rather than helping them to enroll in plans that cap their payments relative to their income. The states alleged that Navient pursued so-called forbearance plans because it took less time for its customer service representatives, saving the company money.

The top student loan official at the CFPB said last week that student debtors benefit when state authorities help police the student loan market, and a Ford Foundation-funded group has been lobbying state legislatures the past few years to adopt new rules governing how student loan companies interact with borrowers.

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