The New York Times, September 7, 2018: After scaling back student loan regulations, administration tries to stop state efforts
After the education secretary, Betsy DeVos, started scaling back consumer protections for student borrowers last year, six states and the District of Columbia sped up their own efforts to crack down on abusive lending practices by companies that administer federal loan programs.
Now Ms. DeVos is trying to stop them.
Trump administration lawyers filed a “statement of interest” last month supporting a lawsuit from the Student Loan Servicing Alliance, an industry trade group, against the District of Columbia for creating a student loan ombudsman office. Under a new city law, the companies would be required to apply for licenses and could lose their right to operate if officials determine that they have engaged in fraudulent or irresponsible practices.
Administration lawyers accused the District of Columbia of trying “to second-guess” department officials in the selection of loan servicers, violating the supremacy clause in the Constitution in a case that could determine the future role of states in consumer protection.
Under Ms. DeVos, the department has loosened regulations on for-profit colleges that account for many student defaults and fraud allegations and killed a plan to introduce sweeping protections for borrowers released at the end of the Obama administration. In July, she proposed an overhaul of the department’s student loan oversight division that would cut an Obama-era debt relief program by $13 billion for students who claim to be cheated by disreputable schools.
Citing the traditional role of states in protecting consumer rights, officials in Connecticut, Illinois, California, Washington, Pennsylvania, Massachusetts and the District of Columbia have responded by imposing new licensing regulations on the debt-servicing companies and passing a student bill of rights.
State attorneys general have also brought new cases against some companies, including the industry giant Navient, for steering cash-short students away from federal loan forgiveness programs.
In July, Ms. DeVos announced plans to replace Obama administration policies by making more data available to students about for-profit institutions and servicers — placing responsibility for identifying low-performing schools on the students themselves.
“Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make,” department officials wrote in a summary of the proposal in July.
But in court filings, the Justice Department argued to shield companies from having to release detailed information about their performance to state and local officials.
The District of Columbia’s law, they wrote, requires companies to make disclosures that were meant to be “confidential unless the federal government” authorizes them.
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