Like a bevy of other jurisdictions, the District of Columbia has established a “borrower’s bill of rights” which creates minimum standards for timely processing, correction of errors, and communication for servicers of federal student loans.
In response to this state-level action, the U.S. Department of Education recently argued that all such regulations are wholly preempted by its own regulatory efforts and the Higher Education Act of 1965 (“HEA”).
On March 20, the Student Loan Servicing Alliance (“SLSA”), a trade group representing companies who collect education debt payments, invoked federal preemption in a lawsuit seeking invalidation of D.C.’s borrower’s bill of rights. In particular, the complaint by SLSA argues that the bill violates a provision of the HEA that says loans authorized by the federal government are not subject to any disclosure requirements under state law.
“This lawsuit is about preserving uniform federal guidelines to ensure borrowers know what to expect from their servicer regardless of where they live,” the SLSA’s spokesman contended.
In general, the SLSA and individual servicers argue that state laws purporting to regulate student lending interject more complexity and confusion into an already complicated federal statutory and regulatory structure for student lending. “It makes perfect sense that the federal government — not individual states — should control who services these assets and how they do it,” asserted the servicers’ attorney. “It helps consumers avoid confusion to have one set of rules as opposed to 50.”
Borrower advocacy groups and some states, on the other hand, argue that state-level action is needed to supplement the regulatory efforts of the DOE and the Consumer Financial Protection Bureau. In particular, states point to their historic role in regulating the field of consumer protection.
This issue arose most recently at congressional hearings on March 20 at which DOE Secretary Elisabeth (“Betsy”) DeVos testified.