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16 State Attorneys General Join D.C. in Defending Its Student Loan Laws

Across the country, 44 million American owe more than $1.5 trillion in student debt. In the District of Columbia, residents have the highest debts in the nation. The average student loan borrower in the District owes $46,000 in federal loans. Nearly one in four student loan borrowers locally carry $80,000 or more in student loans. And when it comes to loan repayments, one in seven District borrowers is also past due.

With data points like these, it is clear why the District’s Attorney General Karl Racine would make consumer protection of student loan borrowers a priority. A local law empowers the District’s Department of Insurance, Securities and Banking to develop a licensing oversight infrastructure for the District. It also created a Student Loan Ombudsman position charged to enforce licensing provisions of the local law, conducting examinations of student loan servicers, and receive and respond to borrower complaints.

From a borrower perspective, this type of oversight represents actions that protect student loan borrowers. They are signs of local government acting in the best interest of its residents.

Student loan servicers have a range of duties that include receiving and processing student loan repayments, enrolling borrowers in alternative repayment plans, and processing applications for loan forgiveness for borrowers dedicating their careers to public service.

In recent years, servicers have also been challenged for practices that harm student loan borrowers. Quality student loan servicing is especially critical when addressing racial disparities in student loan outcomes.  With less wealth than their white peers, Black students are more likely than other racial groups to borrow and to borrow more for their education A 2016 analysis found that Black students on average graduated with about $7,400 more student loan debt than their white peers.

So when the nation’s largest student loan servicer, Navient, was sued by the Consumer Financial Protection Bureau (CFPB) in January 2017, once again students of color were disproportionately affected.  According to Richard Cordray, CFPB Director at the time, “Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”

Unfortunately, the Student Loan Servicing Alliance (SLSA), a trade organization representing student loan servicers and affiliates disagreed so much with the District’s student loan laws that it filed a federal lawsuit challenging the law.

“Adding state requirements on top of already stringent federal guidelines violates federal preemption and creates additional layers of complexity,” said Winfield Crigler, SLSA Executive Director. “This lawsuit is about preserving uniform federal guidelines to ensure borrowers know what to expect from their servicer regardless of where they live.”  

That allegation is disproved in a 2017 CFPB state-by-state recap of student loans That report showed that the District saw steep rises in both the number of loan complaints and those related to debt collection. The 498 student loan complaints filed in the fiscal year ended in September 2017 represented a 66 percent increase over the previous year. Similarly, related debt collection complaints were up 44 percent from the prior year and totaled 88 in number.

The District’s legal defense of its own laws recently gained the support of 16 state attorneys general. An amicus brief, sometimes known as a ‘friend of the court’ brief, underscored the practical importance of preserving state regulation of student loan servicers, and was jointly filed by state AGs in California, Connecticut, Delaware, Illinois, Iowa, Indiana, Main, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont and Virginia.

“With no effective federal oversight, state laws and enforcement actions have played a critical role in protecting borrowers from shoddy and predatory servicer practices…Ousting the States from that critical protective role would threaten the well-being of millions of our residents and improperly override our sovereign prerogative to exercise our police powers to protect our residents,” states the joint brief.

For AG Karl Racine, state actions provide another opportunity for consumer defense.

“State Attorneys General are stepping in to fill the regulatory and enforcement gap and protect consumers when the federal government can’t or won’t protect them,” said Racine. One group of consumers we are focused on protecting is student borrowers, who are particularly vulnerable to scams and abusive business practices. It is critical that the District take action around this issue because our residents have the highest student debts in the nation.

Charlene Crowell is the Deputy Communications Director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

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