Cordray scraps Trump-era policy hindering state investigations of student loan companies

The education department in 2017 ordered Loan firms who work for the agency so as not to respond directly to requests for information from third parties such as attorneys general. Instead, these requests for information had to be sent to the department, which often declined them.

Trump-era policies have effectively hampered the investigation or surveillance of the few companies hired by the Department of Education to collect the $ 1.5 trillion in outstanding student loan debt of some 40 million Americans. Companies include Navient, Nelnet, and the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates under the FedLoan Servicing brand.

Under a new policy that Cordray outlined on FridayEducation will establish a “streamlined and expedited process” for any federal, state, or local government agency to have access to information they need to investigate or monitor student loan companies.

Cordray, a former Ohio attorney general, said he wanted to make it easier for attorneys general and other regulators to access information they need to monitor companies that collect federal student loans. “It’s time for us to be partners, not a roadblock.” Cordray wrote on a blog post announcing the change.

“States and regulators need information if they believe a credit service provider may be violating a law or regulation,” added Cordray. “To be sure, you need to look at the company’s policies and procedures, their manuals, customer complaints, and anything else that shows how the company works.”

Student loan service providers have seen a flurry of lawsuits from attorneys general in recent years accusing them of ill-treating borrowers in violation of state consumer protection laws.

Navient is defending against lawsuits from six states: Illinois, Pennsylvania, California, Mississippi, New Jersey and Washington.

The PHEAA recently closed a lawsuit with Democrat Maura Healey, Attorney General of Massachusetts, over running the public loan program. The company is also facing a similar lawsuit from New York Attorney General Letitia James, a Democrat.

Earlier this week, Colorado Democratic Attorney General Phil Weiser, sued PHEAA on refusing to submit records to state regulators to assess the company’s administration of federal student loans during the pandemic.

An Education Department official told POLITICO that the agency contacted the PHEAA on Friday regarding the Colorado lawsuit. According to the official, the state’s request for information will fall under Biden’s new, more permissive administrative policy.

Consumer advocates and Democratic attorneys general had urged the Biden government to take a more collaborative approach to overseeing student loan service providers.

The student loan industry, which campaigned for the Trump administration to join the fight against state regulations, has argued that states have no power to regulate businesses when they are working on behalf of the federal government. Companies also say it would be unduly burdensome to have to follow different rules in different states.

Rep. Virginia Foxx, the top Republican on the House of Representatives Education Committee, criticized the new approach, saying Cordray’s guidance “bowed to the whims of state Democratic politicians more interested in bringing businesses out of business than struggling student loan borrowers to help. ”

“Congress accuses the FSA of running the federal student loan program for a reason. Federal programs need federal leadership, “said North Carolina-based Foxx. “COO Cordray’s first job, however, is to delegate responsibility to others.”

Cordray’s new policy will also make it easier for the Bureau of Consumer Financial Protection, which he previously headed, to oversee federal student loan service providers. The CFPB and Trump education departments have often argued over the consumer bureau’s access to information about federal student loan service providers.

Kathy Kraninger, the Trump-appointed CFPB director, accused the education department in 2019 of obstructing access to information that regulators need to oversee loan service providers. The CFPB and Education Department later announced that they had reached an agreement to jointly monitor the companies, but did not provide any public details on how this would work.

In addition to the policy that Cordray reversed on Friday, the Trump administration has also issued a legal opinion banning federal student loan service providers. The memo, which the Biden government did not overturn, argues that federal law prevents state regulation of student loan service companies.

Education declined on Friday to say whether the administration was planning to delete or amend DeVos’ legal opinion. One department official just said the administration is “studying how federal law interacts with state efforts to ensure that student loan borrowers receive quality care”.

Attorneys-General, including some Republicans, strongly opposed efforts by the Trump administration to prevent state student loan servicing laws. State banking regulators and the National Governor’s Association have also opposed DeVos ‘policies, which they believe undermined states’ powers to regulate companies operating within their borders.

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