Massachusetts won’t be alone in the fight. Since 2015, a handful of states have passed, or are at least considering, some version of a bill of rights for student borrowers that stiffen requirements for loan servicers—for instance, making sure servicers meet certain standards in order to get accredited, and empowering state officials to investigate and take action against the servicers for unfair practices. States, well aware of the rescission last year of several Obama-era consumer regulations by Education Secretary Betsy DeVos, have been moving to put their own rules in place. Removing regulations, as Devos’s department wants, can harm students, and its latest endeavor to block states’ attempts to police loan servicers has left many wondering: If the department won’t do more to protect students, who will?
Under Obama, the department tried to improve loan servicing from students’ perspective, aiming to make servicers communicate more with borrowers, reform the process of eliminating loan debt for those who are totally and permanently disabled, and create rules for loan servicing that are consistent across the country. When the Trump administration reneged on those aims a year ago, it raised concerns that the department was overlooking borrowers’ interests. Sure, the Obama-era rules weren’t perfect, Jennifer Wang, of the Institute for College Access and Success, an advocacy group, told me, but there was a lot that borrower advocates liked. However, she says, if the department did not have its own reforms, that shouldn’t prevent states from having them.
Loan servicers, for their part, disagree, insisting that the federal government is right to call states off. They argue that inconsistent policy across states—along with the fees that state-level guidelines might require them to pay—will make it harder for them to serve students. Last month, the Education Department made it clear that it largely agreed with them. The department issued a “notice of interpretation,” saying states were overstepping their boundaries by putting restrictions on companies that were servicing federal student loans. The notice stated that it is the department’s job to police the companies, and that states should defer to it. (The Education Department, which is in the process of an overhaul of the student loan–servicing system, declined to comment for this story.)
States immediately fought back. The bipartisan National Governors Association condemned the move, and two Democratic attorneys general immediately hinted that they would disregard the guidance. Meanwhile, after pressure from state lawmakers, two state-backed loan agencies—Massachusetts and New Jersey—resigned from a national loan-servicing lobbying group, the National Council of Higher Education Resources, which supported the department’s move.