The Biden administration has revoked a Trump-era rule that consumer advocates argued allowed the Education Department to subvert state law enforcement probes of student loan servicers — one of a series of recent overhauls that could pave the way for more robust investigations.
In a new letter obtained by NBC News, a group of Democratic senators are expressing support for Education Secretary Miguel Cardona for the latest reversal that tightens oversight of the student loan servicing industry, but they also believe the department must go further to ensure states have the full backing of the federal government to hold loan companies accountable.
The Trump administration's policy, posted in 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 effect last 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 borrowers hold a ballooning $1.5 trillion in student loan debt, federal statistics show, with students of color more likely to take on such debt and disproportionately struggling to pay it back. Since President Joe Biden took office this year, he has wiped out nearly $10 billion worth of student loan debt, most recently for students enrolled in a for-profit college that was accused of malfeasance and closed.
However, advocates for student debt cancellation, including many Democratic senators, have called on Biden to use his federal authority to do more.
The recent policy change spearheaded by Cardona is a sharp reversal of the agenda undertaken by former Education Secretary Betsy DeVos, who was accused of putting the for-profit college industry and student loan servicers ahead of helping student borrowers.
Under DeVos, the Education Department had argued that the federal government's oversight pre-empted state regulations when it came to policing the student loan industry, which Democratic lawmakers had said allowed the administration to essentially shield student loan servicing companies.
The Student Loan Servicing Alliance, a trade group, had defended the Trump administration's interpretation, saying it was "not just good law, it is good policy." In a statement Wednesday, the group said student loan servicers are looking for "clear and firm guidance" from the federal government and those companies "have and will execute that guidance."
"We need a single and consistent set of rules and expectations from the agency that is responsible and owns accountability, which is the U.S. Department of Education," Scott Buchanan, the group's executive director, said.
A group of Democratic attorneys general — representing California, Colorado, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Virginia, and Washington, D.C. — sent a joint letter to Cardona this week in support of the latest policy change, but asked for clarification that "state laws regulating servicers are not preempted" except in certain narrow circumstances.
Cardona said last 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 asked him to ensure that the messaging is clear that student borrowers will 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."