Why Would the Government Stop States From Helping Student Borrowers?

"Every year, the Department of Education issues billions of dollars in student loans. And every year, outside companies are contracted to collect on those loans. The loans themselves are the subject of fierce debate among the higher-education crowd—but how they are collected tends to draw the most ire," The Atlantic reports.

"Borrowers have reported that these outside companies—loan servicers, they're called—have lost their paperwork, made it harder than it should be to to zero out their balances after becoming totally disabled, and incorrectly calculated their income when registering for a repayment plan based on it, resulting in higher payments than they can afford.  

Lately, several states have taken notice of these practices and are trying to impose stricter regulations on loan servicers, in order to, they say, protect students from being exploited. On Wednesday, in a unanimous vote, the Massachusetts State Senate passed a bill—a student bill of rights, of sorts—with this in mind. But the bill's passage puts Massachusetts on the path towards a major fight with the Education Department, which has recently told states to lay off when it comes to oversight of loan servicers. (The department's position doesn't impact how states regulate the companies that collect privately issued loans.)

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."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.


Publication Date: 4/16/2018

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