Since Betsy DeVos took over as Secretary, the Department of Education has been — to put it mildly — generous to the student loan industry. Through DeVos, the Trump administration has stopped cooperating with federal financial regulators to rein in unscrupulous loan servicers, and announced its plan to put all federal student loan accounts into the hands of a single company. But several states are letting it be known that they will not go easy on student lenders and servicers, even if they ask nicely.

This morning, a coalition of 25 state attorneys general urged DeVos and the Department of Education to reject a recent campaign by student loan servicers and debt collectors calling for the government to stymie state oversight of the industry.

In a letter [PDF], the coalition called on DeVos not to give into the efforts of two student loan servicing industry associations to relieve themselves from oversight by state regulators, claiming that the Dept. of Education lacks the authority to make such a declaration.

The AGs note that preempting state laws 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.”

To that end, the Dept. “should reject the Industry Requests in full-and resume the long tradition of federal-state cooperation in protecting students and borrowers from unfair and deceptive practices,” the letter states.

Looking For Fewer Rules

The coalition’s plea comes just months after two industry groups called on the Dept. of Education to block or “preempt” state-led efforts to combat potential and ongoing abuses by student loan servicers.

In a June letter [PDF] to DeVos, the Education Finance Council claimed it was concerned with the “growing tendency of state entities to seek to impose state-level laws and regulations” on student loan servicers contracted by the federal government.

“If left unchecked, these state efforts will continue to add an unnecessary web of regulations which are both duplicative of and potentially contradictory to existing federal regulations and policies,” the group claims.

To that end, it asked DeVos to publicly state that these agencies must follow the Department’s rules and regulations, and that these rules “hold preeminence in regulating the activities of contractors.”

This sentiment was echoed in a July letter [PDF] to Acting Assistant Secretary for Postsecondary Education Kathleen Smith by the National Council of Higher Education Resources.

The group urged the Dept. to issue the same “regulatory guidance,” claiming that it would be too difficult and costly to follow both federal guidelines and those implemented by states.

What Does This Mean?

Essentially, the groups are asking the Dept. to clearly state that federal laws are the only ones that a company who is contracted to provide federal student loan servicing must follow.

This would mean that if a company services student loans on behalf of the federal government — i.e. the Dept. of Education — they wouldn’t have to follow state laws.

Both associations contend that they are already “highly‐supervised and regulated, both by the Department and the Consumer Financial Protection Bureau.”

However, it should be noted that since the letters were written, the Dept. of Education has taken steps to weaken the oversight of student loan servicers, namely in ending a relationship with the CFPB over such matters.

In recent years several states have either enacted or proposed laws that dictate what constitutes a servicer, requires companies to obtain licenses to service education loans to borrowers residing in their state, and otherwise follow regulations intended to protect borrowers and weed out bad players.

The Need For Laws

While the associations claim state laws provide “additional regulatory burden” on them, states note that the rules have already helped borrowers.

“State enforcement agencies have long been at the frontlines in protecting their citizens from fraud, deceptive conduct; and unfair business practices, including by financial service companies, debt collectors, and others,” the AGs wrote to DeVos.

Recent state enforcement actions (this is not a complete list) include:

• January 2017: The CFPB, along with Washington and Illinois, sued Navient claiming the company cheated borrowers out of repayment rights.

• July 2017: New York Attorney General Eric Schneiderman’s office opened an inquiry into the business practices of National Collegiate Student Loan Trust following reports that the company often files collection lawsuits against defaulted borrowers without proper or correct paper.

• Aug. 2017: Massachusetts Attorney General Maura Healey filed a lawsuit [PDF] accusing the Pennsylvania Higher Education Assistance Agency (PHEAA) — doing business as FedLoan Servicing — of harming borrowers by improperly servicing their accounts as part of the Public Service Loan Forgiveness Program and the Teacher Education Assistance for College and Higher Education (TEACH) Grant program.

• Aug. 2017: A group of 13 state attorneys general and the CFPB reached a $183.3 million settlement with Aequitas Capital Management, the issuer of private student loans for now-defunct for-profit educator Corinthian Colleges.

“We cannot allow student loan servicers to sidestep state law and oversight and deny students and borrowers these vital protections from student loan abuses,” New York Attorney General Eric Schneiderman said in a statement.

The letter to DeVos was signed by the AG from California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Massachusetts, Maryland, Maine, Minnesota, Montana, New York, North Carolina, Oregon, Rhode Island, Tennessee, Texas, Virginia, Vermont, Washington, and the District of the Columbia.