States must regulate student loan abuse
- Senators Elizabeth Warren and Sherrod Brown have called for more state oversight of student loan companies.
- Biden recently rolled back a Trump-era policy that prevented states from regulating these companies.
- Democrats are calling for even more action to protect borrowers from abusive practices.
Last month, the Education Department rolled back a Trump-era policy that prevented states from regulating student loan companies. Massachusetts Senator Elizabeth Warren hailed the reversal, but she wants states to do even more to protect borrowers from student loan abuse.
“The world has changed for student loan administrators,” Warren told Insider. “They can’t sign a contract, do a lousy job, cost borrowers tons of money and still get their contracts renewed.”
Last week, Warren and Ohio Senator Sherrod Brown led six of their fellow Democrats to urge Cardona in a letter to go beyond reversing President Donald Trump’s policy and offer additional protections to borrowers, such as requiring loan companies to be licensed or to have complaints handling protocols in place.
In 2017, more than half of the 50 states proposed or passed legislation to regulate student loan services. But Trump’s Education Department changed that with a memo that said the Privacy Act of 1974 prevented student loan departments from providing documents to state regulators unless the department does not approve. A 2018 advisory from Trump’s department followed, isolating student loan services from any kind of state regulation.
As Insider previously reported, Cardona’s new state regulation policy allows states to help enforce the Borrowers Bill of Rights and similar laws to address loan service issues – a change by report to Trump, who ensured the federal government was the only student loan watchdog in the country.
“When service providers or other contractors take positions that hamper federal or state oversight, they should face the consequences of their current contracts and future allocations and renewals,” the letter said. “We strongly urge you to incorporate responsibility for abusive and illegal consumption practices and for the lack of cooperation with federal and state regulators in the ongoing management of the student loan program.”
The letter noted the benefits that have already resulted from increased state scrutiny over student loan companies. For example, Massachusetts Attorney General Maura Healey recently struck a deal with a company that offers student loans – the Pennsylvania Higher Education Assistance Agency (PHEAA) – demanding remediation from any borrower who may have been harmed by the loans. company “errors and misconduct”. affecting more than 200,000 borrowers.
Allowing for increased state oversight is likely to improve the experiences of borrowers who have struggled for years to repay debt and obtain information on student loan cancellation. Insider has spoken to borrowers who have gone into debt because their agents just don’t answer the phones, and when they do, they are often told the wrong thing, which can force borrowers to keep paying off debts they do. they might not have to.
“It was the same thing over and over again,” said one borrower. “It was extremely frustrating.”
But Warren believes businesses will no longer be able to take advantage of borrowers, especially after the shutdown of two companies that handle student loans in July.
“The whole student loan industry is in turmoil right now,” Warren told Insider. “We need to get out of this with less student loan debt, and the remaining debt needs to be better managed.”