The legislation, which reauthorizes the Higher Education Act of 1965, would allow the federal government to preempt state laws governing student loan servicing and debt collection. Lawmakers originally sought to rein in local authorities from dictating what information servicers needed to disclose and their interactions with federal student loan borrowers. But the version that cleared a key House committee Tuesday not only includes that provision but also takes aim at licensing, delivering a blow to a nascent movement of states seeking greater oversight of servicers.

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“This is a blatant attack on the rights of states to protect student loan borrowers,” said Maggie Thompson, executive director of Generation Progress Action, an arm of the liberal think tank Center for American Progress. “When it comes to regulating financial institutions, state laws are designed to stack up on top of federal law.”

States have been stepping in to fill what many see as a void in the federal oversight of student loan servicers. For years, liberal lawmakers have criticized the Education Department for lax monitoring of the companies it pays to manage the $1.2 trillion student loan portfolio. The Consumer Financial Protection Bureau has received thousands of complaints about servicers providing inconsistent information, misplacing paperwork or charging unexpected fees. The bureau has accused some of these companies of driving borrowers into default with sloppy collection and application of payments.

Against this backdrop, California, Connecticut and the District have used licensing to bring federal student loan servicers under their regulatory purview. Their local agencies have the authority to monitor loan servicers’ compliance with federal laws, investigate their behavior and refer cases to the attorney general. Each has established a borrower’s bill of rights with minimum standards for timely payment processing, correction of errors and communication. The measures require companies to produce periodic information on their business activities that could be used to identify breakdowns in servicing.

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Other states, including New York, New Jersey and Illinois, are at various stages of following suit, much to the chagrin of industry groups.

In July, the National Council of Higher Education Resources, a trade group representing private lenders, loan servicers, debt collectors and loan guarantee agencies, sent a letter urging the Education Department to preempt state laws that regulate federal contractors. Council president James Bergeron said state laws aimed at servicing companies will add “unnecessary complexity to the federal student loan system” and create “a regulatory and supervisory maze in the process” that will lead to confusion.

Bergeron wrote that some new state servicing standards conflict with federal rules. Illinois, he noted, is proposing lengthy requirements for the transfer of student loans from one servicer to another, although federal rules exist. The House Republican bill addresses his concerns by nullifying any state “requirement relating to the servicing or collection of a loan.” The industry council did not immediately respond to requests for comment on the congressional bill.

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Winfield P. Crigler, executive director of the trade group Student Loan Servicing Alliance, said the House GOP bill would simply clarify existing Higher Education Act preemptions that establish a uniform regulatory structure for the federal student loan program.

“It doesn’t help borrowers if states create a 50-state patchwork of competing requirements dictating how payments are applied on Department of Education loans or which notices are sent when,” she said. “Nothing in the bill as we read it would prevent states from efforts to assist residents, such as establishing an ombudsman office to help them navigate the complexities of state and federal loan programs.”

Last year, the D.C. Council created a student loan ombudsman position to regulate education loan servicers doing business in the city. The District appointed Charles Burt to the role, to field borrower complaints, educate residents about repayment options and monitor servicers. The House bill would not affect the city’s ability to track complaints or prosecute fraud, but by limiting the District’s licensing authority, congressional Republicans would make it difficult for the city to thoroughly investigate federal student loan servicers.

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D.C. insurance commissioner Stephen Taylor said his office is studying the bill.

“We are concerned and do not want to create a problem like the subprime mortgage crisis which, in part, was facilitated by federal preemption of state anti-predatory lending laws – laws that would have prevented volumes of the bad subprime loans that harmed the nation’s economy,” he said, in a statement to the Washington Post. “Given the problems identified in the student loan market, we need to be very careful to ensure borrowers are protected as they work to repay their loans.”

Servicing groups have called state campaigns for greater oversight of their industry misguided. Rather than focus on licensing servicers, they say states should support simplifying repayment plans and counseling students before they borrow. Some have complained that states are imposing onerous fees that fail to account for the narrow profit margins of servicing federal student loans.

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The District, for instance, wants companies to pay an annual $800 fee plus $6.60 per loan serviced during the licensing period, a requirement the House GOP bill would outlaw for federal servicers. Industry groups have argued that because people often have multiple loans, the annual fee per borrower could soar. They note that the most a federal student loan servicer can earn per month for keeping someone current is $2.85 per borrower.

Advocacy groups have balked at such complaints, arguing that if servicing companies were doing their jobs effectively, states would not have to intervene. And as the Trump administration has rolled back consumer protections for student loan borrowers, more states see the need to move ahead with plans to regulate education loan companies.

In the spring, Education Secretary Betsy DeVos withdrew policy memos issued by the Obama administration imposing contract requirements to improve the quality of servicing. One called on the Office of Federal Student Aid to hold companies accountable for borrowers receiving accurate, consistent and timely information about their debt. Another 56-page memo called for the creation of financial incentives for outreach to people at substantial risk of defaulting on their loans. DeVos said the policies were far too complex and costly to implement.