Student Loans

Analysis: House Bill Attacks State Protections for Student Loan Borrowers

By CFA Staff

Earlier this year, an analysis by the Consumer Federation of America found that 1.1 million Americans defaulted on a federal student loan in 2016. That’s one every 28 seconds. Like the breakdowns in the mortgage servicing industry seen during the foreclosure crisis that devastated the economy, we have seen similar problems in the student loan servicing industry.

State attorneys general are prosecuting bad actors that are cheating student loan borrowers. The Attorneys General of Illinois, Washington, and Pennsylvania, have joined the Consumer Financial Protection Bureau (CFPB) in suing the nation’s largest student loan company, Navient (formerly known as Sallie Mae), for violating the law.

Illinois Attorney General Lisa Madigan led an effort to enact a new landmark law that would hold student loan companies to higher standards, which would help to reduce student loan defaults.

It’s not just Illinois. States across the country are working to put into place new protections for student loan borrowers. (The Higher Ed, Not Debt campaign put together this map to track all of the activity.)

However, Congress is considering stripping the rights of states to protect borrowers from student loan servicing abuses. Tucked away on page 464 of a bill being considered this week is language that would nullify state laws related to student loan servicing and debt collection.

A bipartisan group of 25 Attorneys General is vigorously opposing efforts of the federal government to undermine states’ rights and nullify their laws. The AGs wrote that preempting state laws would “defy the well-established role of states in protecting their residents from fraudulent and abusive practices.”

CFA believes that preemption of state consumer protection laws should be done on a case-by-case basis and only when a state law is less protective of consumers. This provision is a gift to the student loan industry that will do nothing to help curb abuses and the needless number of student loan defaults occurring every day.