In a public comment to the U.S. Department of Education (ED), the SBPC, American Federation of Teachers, AFL-CIO, Americans for Financial Reform Education Fund, Center for Responsible Lending, and the National Consumer Law Center, representing students, student loan borrowers, teachers, and consumers, applaud ED’s affirmation that states are important partners in protecting student loan borrowers and call for more support by states as they continue this important work.
On August 12, the Department issued a formal interpretation to “revise and clarify” its position on the legality of state laws and regulations that apply to various aspects of the federal student loan industry, such as loan servicing and collections. In its interpretation, the Department affirms that states are valued partners in ensuring that this “far-flung system” is working for borrowers and to address industry shortcomings. Specifically, it explains that states are not categorically preempted by federal law from doing this essential work, and that federal law should only preempt state law in situations where the two irreconcilably conflict and it would be impossible for a private industry actor to comply with both federal and state requirements.
In its recent interpretation the Department returned to its historical practice of partnering with states and expressly revoked an interpretation that was issued under former-Education Secretary DeVos, which claimed states had no authority to protect federal student loan borrowers but which lacked any legal support and has been soundly rejected by federal courts.
The Department’s interpretation marks an important step in coordinating federal and state oversight over the student loan industry, and in supporting states’ historical and necessary role in enacting consumer protections against industry abuses.