Ask Republican politicians how they feel about gun control, and they’ll say this is a matter for states to decide. “I think we need to respect federalism and respect local jurisdictions,” House Speaker Paul D. Ryan insisted just last week.
But ask Republicans about protecting people from being ripped off by student-loan debt collectors, and they’ll sing a completely different tune.
A confidential draft memo drawn up by the U.S. Department of Education lays out the case for why states, including California, should abandon their own laws for student-loan servicers and let the feds allow these for-profit companies to skate by with considerably less oversight.
I got my hands on a copy of the memo. It doesn’t mince words in telling California and other states to back off.
“State regulation of the servicing of Direct Loans impedes uniquely Federal interests,” it declares.
The memo says the federal government has jurisdiction when it comes to “streamlining student lending and saving taxpayer dollars.”
This is an extraordinary stance considering the sole purpose of these state laws is to protect people burdened with student loans from being muscled by overzealous debt collectors — a goal that, one would think, is shared by federal authorities.
But under President Trump’s appointee as Education secretary, Betsy DeVos, the priority seems to be safeguarding the loan-servicing industry, not consumers.
California officials say the Education Department’s memo is aimed squarely at the Golden State, which has enacted some of the most comprehensive rules for student-loan servicers.
And they say they’re not going to just roll over.
“If the federal interest is protecting federal loan servicers against their clients, then you betcha, I’m going to impede that,” said state Assemblyman Mark Stone (D-Scotts Valley), author of the Student Loan Servicing Act, which was signed into law by Gov. Jerry Brown in 2016 and takes effect in July.
I asked him how gun control can be a states-rights issue but student debt is deemed an exclusively federal interest.
“It just underscores that this White House has no clue what it’s doing,” Stone told me.
I reached out to the Education Department for comment. No one responded.
California has about 4.2 million student loan borrowers carrying roughly $1.2 billion in total debt.
Student-loan servicers are companies that manage debt on behalf of the federal government. They’re supposed to work with borrowers who may have difficulty making payments, and to make the process as easy and transparent as possible.
Stone’s bill creates a licensing program within the state Department of Business Oversight to oversee loan servicers that aren’t banks or credit unions. This will give California the ability to investigate and crack down on any unfair or illegal debt-collection practices.
One of the country’s largest student-loan servicers is a company called Navient. It’s being sued by multiple states and the Consumer Financial Protection Bureau, which say it misled borrowers and drove up repayment costs.
Stone figures that if Navient didn’t write the Education Department’s memo, it almost certainly made sure the memo got written.
“They’ve been threatening to go to the Department of Education to shut us down,” he said.
Patricia Christel, a Navient spokeswoman, told me in a statement that “we are working to make improvements to the California law.”
State lawmakers, she said, “have received a great deal of misinformation about student loans.”
California’s law places no significant burden on Navient and other loan servicers other than asking them to disclose details of their collection practices as part of the licensing process.
The law says student-loan servicers may not “engage in any unfair or deceptive practice toward any borrower or misrepresent or omit any material information in connection with the servicing of a student loan.”
If that’s an unduly onerous requirement, then this is an industry in serious need of parental supervision.
Yet the Education Department’s memo says requirements under the California law “will increase the costs of student loan servicing, perhaps exceeding the amount a servicer receives on a per loan basis.”
It says “the servicing of Direct Loans is an area involving uniquely Federal interests that must be governed exclusively by Federal law.”
If protecting consumers from financial abuse was a distinctly federal interest, the Trump administration wouldn’t be systematically crippling the federal Consumer Financial Protection Bureau, leaving it up to states to look after people’s financial well-being.
As for DeVos, Sen. Elizabeth Warren (D-Mass.) and Rep. Katherine Clark (D-Mass.) issued a report last week accusing the Education secretary of mismanaging her department and favoring student-loan servicers over borrowers.
“Betsy DeVos is the worst secretary of Education this country has ever seen — by a large margin,” Warren said in a statement. Added Clark: DeVos is “more interested in profits for privatization advocates and predatory lenders than making sure all of our kids have a fair shot at a great public education.”
I asked state Atty. Gen. Xavier Becerra if California is prepared to mount a defense of its new law if DeVos’ Education Department demands changes.
“California led the country in enacting a licensing program for private contractors that service federal student loans,” he told me. “We are proud of this important program and of our strong student protections in general, but we also know we have a long way to go.”
Becerra said nearly a third of California student-loan borrowers are in default or delinquent in payments, which he called “a clear indication of servicing failure.”
“There is a student loan debt crisis in our country, and now is not the time to take a cop off the beat,” Becerra said. “We are evaluating all of our legal options to respond to this reported attempt by Secretary DeVos to neuter the states.”
Which sounds like California is getting ready to take the Trump administration to school.