On March 15, a bipartisan group of 30 state Attorneys General released a letter urging Congress to reject Section 493E(d) of the Higher Education Act reauthorization – H.R. 4508, known as the “PROSPER Act” – which would prohibit states from “overseeing, licensing, or addressing certain state law violations by companies that originate, service, or collect on student loans.” Led by the New York and Colorado Attorneys General, the letter characterizes Section 493E(d) as an “an all-out assault on states’ rights and basic principles of federalism.” According to the letter, if enacted, parts of the student loan industry would be immunized from state-level enforcement, placing a larger consumer protection role on the Department of Education for which the agency is not equipped to handle. The Attorneys General assert that the states have the legal capacity and track record to enforce against abuses in the student loan market; citing to a statistic which estimates $1.38 trillion in student loan debt, the letter highlights previous state enforcement actions and emphasizes the need for states and the federal government to work together to protect U.S. borrowers.

In addition to Section 493E(d) of the PROSPER Act, the Department of Education recently published an interpretation in the Federal Register which takes the position that state regulation of certain federal student loan programs is preempted by federal law, previously covered by InfoBytes here.