The U.S. Department of Education has already made it harder for Consumer Finance Protection Agency to regulate student loan servicers; will it try to shield them from state oversight as well?

In recent years, state attorneys general have investigated a number of problems in the student loan industry and won settlements returning tens of millions of dollars to student borrowers. In response, they say, leading industry groups have begun lobbying the Department of Education to block or “preempt” state led efforts to combat potential and ongoing abuses by student loan servicers.

A bipartisan coalition of AGs and officials representing 25 states sent a letter to Education Secretary Betsy DeVos today urging the department to reject what they said was a campaign by student loan servicers and debt collectors to dismantle state oversight of the industry.

New York Attorney General Eric Scheiderman
New York Attorney General Eric Scheiderman
Bloomberg News

In their letter, the attorneys general say that the department lacks the legal authority to block state oversight. And they warn that any attempt to sideline their efforts would put students and borrowers at risk.

“State attorneys general from across the country have put tens of millions of dollars back into the pockets of student borrowers,” New York Attorney General Eric Schneiderman said in a press statement. “Today, I’m proud to lead a coalition of Attorneys General from red and blue states to fight back against an industry that is still in urgent need of reform. We cannot allow student loan servicers to sidestep state law and oversight and deny students and borrowers these vital protections from student loan abuses.”

In their letter, the attorneys general say that the industry requests would “defy the well-established role of states in protecting their residents from fraudulent and abusive practices, plainly exceed the scope of the department’s lawful administrative authority, and would needlessly harm the students and borrowers at the core of the department’s mission.”

In addition to Attorney General Schneiderman, the letter included signatures of the attorneys general and other top state officials from California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Massachusetts, Maryland, Maine, Minnesota, Montana, North Carolina, Oregon, Rhode Island, Tennessee, Texas, Virginia, Vermont, Washington, and the District of the Columbia.

The Department of Education did not immediately respond to a request for comment.

In August, the department ended a collaboration with the CFPB, one of the most aggressive regulators of for-profit schools and student loan servicers, to share information about student complaints. It accused the CFPB of overreaching and expanding its jurisdiction.

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