A new "notice of interpretation" from Education Secretary Betsy DeVos aims to make it even harder to pay off your student debt—and easier to get overcharged and abused in the process. DeVos has already chipped away at regulations designed to protect borrowers, allowing student loan servicers like Navient and Nelnet to engage in deceptive practices and defraud borrowers, leading them deeper and deeper into debt. The "notice of interpretation" the Department of Education published in the Federal Register, asserting that federal laws regarding student debt collection pre-empt state laws, takes DeVos' campaign a step further by preventing states from regulating lenders when she refuses to do so.
Education advocates say that's not good for college access and it's not good for the nation's economy.
Here's the breakdown:
Say you have a student loan—along with 44 million other people in the United States. If it's a federal student loan, the government assigns you a loan servicing company that is supposed to help you pay off that loan. The company is tasked with sending you payment reminders, telling you how much interest you're paying and suggesting how you might pay off your loan more easily.
But nearly all servicers are more focused on profit than on service.
That means your servicer might charge you more interest than you owe. If you're in a public service job—say, a faculty member at a state university, or a public school teacher or a social worker—the lender might not bother to mention repayment plans or debt forgiveness options that are available to you. Or it might give you misleading information that prevents you from accessing those options.
Maybe your provider will give you the information you need, but send it so late that you miss your payment deadline. Your interest goes up. You have to pay a fee. In short, your loan service provider can make it so difficult to repay your loan that you default.
Research shows that's the reality for too many student loan borrowers. It's enough to keep people away from college altogether.
Although regulation could prevent this avalanche of exploitation and the chilling effect it has on people considering higher education, pro-lender lobbyists at the National Council of Higher Education Resources have convinced DeVos that the "maze" of regulations keeping lenders in check is too great a burden, and therefore unnecessary.
AFT affiliates have banded together to fight this deregulation and protect student borrowers. They've been instrumental in helping states take up where the federal government has failed. Connecticut was the first to adopt a "Student Loan Bill of Rights" establishing licensure requirements for student loan servicers, with prohibitions against defrauding borrowers, engaging in unfair or deceptive practices, or misrepresenting or omitting information about student loans. Similar laws have been enacted or considered in dozens of other states.
But NCHER fought back, lobbying against state regulation as well. To counter NCHER, 26 state attorneys general wrote to DeVos last fall, urging her "to reject an ongoing campaign by student loan servicers and debt collectors" against state-level oversight.
DeVos, however, sided with NCHER. On March 12, she posted a "notice of interpretation" in the Federal Register that student loan servicers are regulated only by federal—not state—law. DeVos is trying to disempower any state legislators and attorneys general from providing meaningful oversight of student loan services, says AFT President Randi Weingarten, yet the education secretary fails to provide any oversight herself.
The fight is not over. "Secretary DeVos can write as many love letters to the loan servicing industry as she wants; I won't be shutting down my investigations or stand by while these companies rip off students and families," said Massachusetts Attorney General Maura Healey (pictured above), in a statement to the online publication, The Intercept. "The last thing we need is to give this industry a free pass while a million students a year are defaulting on federal loans." Healey has filed suit against the Pennsylvania Higher Education Assistance Agency for, among other things, overcharging interest on student loans.
Meanwhile the AFT has released a report describing how NCHER is using taxpayer money to fight the very regulations designed to protect them. With information obtained through the Freedom of Information Act, the report simply follows the money trail: States hire the loan servicers with taxpayer dollars to service federal student loans they manage. Those loan companies pay millions to NCHER in dues and conference fees. Those fees support NCHER's efforts to tear apart the very regulations designed to protect taxpayers who take out student loans.
DeVos' "notice of interpretation" is not law or even an official regulation, and therefore is subject to legal challenges. Many states have vowed to continue to enforce regulations on loan servicers; the AFT continues to support them.