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Financial Services Law Insights and Observations

States urge Department of Education to protect student loan borrowers

State Issues State Regulators NYDFS Student Lending Department of Education Bank Regulatory

State Issues

On March 9, NYDFS sent a letter on behalf of a multi-state coalition of financial regulators inviting recently confirmed Department of Education Secretary Dr. Miguel Cardona to partner with the states to ensure protections for student loan borrowers. Specifically, the letter urges Secretary Cardona to reverse two policies instituted by former Secretary Betsy DeVos that the coalition claims “undermine state supervision of private companies that service federal student loans.” The first is a 2018 interpretation (covered by InfoBytes here), which takes the position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program is preempted by federal law. The coalition argues that the Department’s 2018 preemption interpretation has made “state-level oversight of student loan servicers more burdensome.” As such, the coalition urges Secretary Cardona to promulgate a regulation rejecting federal preemption of state consumer protection laws to ensure borrowers can “benefit from state oversight of student loan servicers.” The letter also discusses former Secretary DeVos’s attempt to use the Privacy Act of 1974 “as a shield from necessary state oversight”—an action the coalition claims leaves states “with no choice but litigation” to obtain documents needed for industry oversight.