OAKLAND – California Attorney General Rob Bonta commended the U.S. Department of Education (ED) for rescinding an erroneous DeVos-era interpretation of federal law that attempted to shield student loan servicers from state-level oversight and enforcement. In the comment letter, a multistate coalition supports ED’s recognition of federal-state partnership in regulating student-loan servicers, and calls on ED to further clarify the very limited circumstances in which state laws regulating student loans servicers are preempted.
“States play an important role in protecting federal student loan borrowers from servicer failures and misconduct,” said Attorney General Bonta. “I’m pleased to see the Department of Education under Secretary Cardona recognize states’ vital oversight and law enforcement role. We called for this legally questionable and misguided DeVos-era interpretation to be reversed from the start. As a nation, we must fix the broken student loan system. This is a team effort, and I look forward to working with our federal partners."
California has been a leader in pursuing misconduct related to federal student loan servicing, including through its ongoing litigation against Navient, one of the nation’s largest student loan servicers. California’s lawsuit, which was filed in 2018 following a lengthy investigation, alleges that the company violated California consumer protection and debt collection laws. In 2017 California also enacted the Student Loan Servicing Act, one of the nation’s first laws regulating student loan servicers.
In 2018, in response to state enforcement and regulatory efforts, including those in California, then-Secretary of Education Betsy DeVos issued an interpretation of the federal Higher Education Act that purported to preempt state laws that target abuses by student loan servicers in a misguided effort to shield these companies from state-level enforcement. Courts around the country consistently declined to give this DeVos-era interpretation deference, finding it neither thorough nor persuasive, and therefore deserving of little to no weight. Earlier this month, ED, at the urging of state attorneys general, issued a notice revising and clarifying the prior interpretation. In the notice, ED concludes that state oversight of servicers advances the goals of the federal student loan program by protecting students from substandard servicing practices and that collaboration between federal and state entities will enhance servicer accountability and borrower protections. In their comment, the attorneys general express their strong support for ED’s notice. The coalition also asks ED to clarify that state laws regulating servicers are only preempted if compliance with both state and federal law is impossible.
Attorney General Bonta joins the attorneys general of New York, Colorado, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island, Virginia, and the District of Columbia in filing the comment letter.
A copy of the comment letter is available here.