DeVos says states have no authority to regulate predatory student lenders

Inside Subprime: March 13, 2018

By Caroline Thompson

U.S. Secretary of Education Betsy DeVos is not having a great week, and it’s only Tuesday. First, an interview she gave to 60 Minutes’ Leslie Stahl went viral after DeVos – the woman in charge of the entire country’s education department – bungled a series of simple questions about school reform and public school funding. Not only did DeVos admit she had never personally visited a “failing” school, but she also acknowledged that the Michigan school system, which she had a hand in designing, did not improve under her direction.

Last week, she walked out of a press conference at Marjory Stoneman Douglas High School in Florida – the site of a deadly mass school shooting that left 17 students and faculty members dead –  after refusing to speak or meet with victims of the tragedy.

Now, the controversial Secretary of Education is throwing her hat into the ring on yet another favorite topic of the Trump administration: student loans. DeVos has previously stated that her department might only partially forgive defrauded students’ loans, and may not honor a Bush-era policy offering loan forgiveness for certain people in the public sector. On Friday, DeVos argued that states do not have a legal right to regulate predatory student lenders.

According to an article on Inside Higher Ed by Andrew Kreighbaum, DeVos argued that state-level regulations conflict with federal law.

Recently, several States have enacted regulatory regimes or applied existing State consumer protection statutes that undermine these goals by imposing new regulatory requirements on the Department’s Direct Loan servicers, including State licensure to service Federal student loans,” wrote the Department of Education in a preemption notice. “State servicing laws are purportedly aimed only at student loan servicers, but such regulation affects the “[o]bligations and rights of the United States under its contracts” with servicers and with student loan borrowers, the “relationship between a Federal agency and the entity it regulates,” and the rights of the Federal government related to federally held debt. Accordingly, the servicing of Direct Loans is an area “involving uniquely Federal interests” that must be “governed exclusively by Federal law.”

Both consumer groups and Democratic officials were incensed by this statement, calling it, “another attempt to weaken protections for student loan borrowers,” according to Kreighbaum. “Industry groups had argued for the declaration, saying that states across the country enacting their own particular rules would create a ‘regulatory maze.'”

As the Consumer Financial Protection Bureau backs away from its role protecting students from predatory lenders, states have increasingly taken up the cause, specifically against the major lender Navient, which has been accused of using evasive tactics to push borrowers into defaulting.

If states are barred from stepping in on students’ behalf, defrauded borrowers will have literally nowhere else to turn.

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