State regulators press Cardona to scrap DeVos policy blocking oversight of student loans

State financial regulators are calling on Education Secretary Miguel Cardona to reverse Trump-era policies aimed at preventing states from overseeing and investigating the companies that collect federal student loans.

The Conference of State Banking Supervisors and the North American Collection Regulatory Association wrote a joint letter to Cardona this week urging him to reverse the previous administration’s efforts to shield student loan companies from state regulation.

The Trump administration in 2018 issued a legal opinion that declared federal student loan servicers off limits to state regulators. The memo, signed by then-Education Secretary Betsy DeVos after lobbying from the student loan industry, argued that federal law preempts state efforts to regulate or investigate companies that collect federal student loans.

In their letter this week, the state regulators said Cardona should rescind the DeVos memo because it “sets forth baseless assertions of preemption to obstruct and discourage state regulation of federal student loan servicers and collectors.”

The groups said that the need for coordinated state oversight of student loan servicers is especially acute because the Education Department is preparing to eventually restart monthly payments and interest, which has been paused during the pandemic for some 40 million Americans.

Key context: The new push from state regulators comes as Democratic attorneys general and consumer groups have also been pressuring the Biden administration to reverse the DeVos legal opinion.

The state banking regulators group previously criticized the Education Department’s preemption memo, as did the National Governors Association.

Education Department changes so far: Richard Cordray, the chief operating officer of Federal Student Aid, earlier this year rescinded a related Trump-era policy that restricted state officials’ access to information they need to regulate student loan companies.

Cordray, the former CFPB director and attorney general of Ohio, said in a blog post at the time that he wanted to work more collaboratively with state regulators. Under the new Biden administration policy, the Education Department plans to expedite requests it receives from state officials seeking information from federal student loan servicers.

The state regulators, in their letter to Cardona this week, said that they appreciated the intent of Cordray’s new policy but said that it does not go far enough. They want the Education Department to recognize that state regulators are independently empowered to request the information from student loan companies without having to go through the federal agency.

“Federal student loan servicers are federal contractors, but they are not federal instrumentalities,” they wrote to Cardona. “As private businesses they remain subject to visitation by state officials, including the power to request books and records.”