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States Can Sue Federal Student Loan Servicers, Education Department Says

States Can Sue Federal Student Loan Servicers, Education Department Says
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States Can Sue Federal Student Loan Servicers, Education Department Says

States Can Sue Federal Student Loan Servicers, Education Department Says

In its latest move to reverse Trump-era policies, the Education Department said on Monday that states were free to control federal student loan services that violate local consumer protection laws, reversing thus its previous legal position.

“Effective collaboration between states and the federal government is the best way to ensure that student loan borrowers get the best possible service,” Education Secretary Miguel A. Cardona said in a statement announcing the change. .

The federal government pays seven vendors to collect payments from nearly 43 million borrowers on $ 1.4 trillion in federal student loans. Auditors from government and other watchdogs have repeatedly criticized companies for shoddy practices and mistakes that they say hurt troubled borrowers and increased repayment costs for many people.

Several state attorneys general have sued federal loan officers for their missteps. In 2018, Betsy DeVos, Education Secretary to President Donald J. Trump, sought to block these lawsuits arguing that only the federal government had the power to oversee and punish its federal loan officers.

Several federal judges viewed this position with skepticism. In at least four cases, federal district or appellate courts have ruled against the department and found that states retain certain enforcement rights over the actions of duty officers towards residents of their state.

The education ministry cited the rulings in new guidelines explaining its reversal and said working collaboratively with states instead of fighting them “could produce a more robust oversight and enforcement system to monitor and improve outcomes. performance in this extended system “.

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Maura Healey, Attorney General of Massachusetts, praised the new position. Her office sued, and then settled with, the government’s largest loan service over mistakes it said had hampered public service workers seeking to use a loan forgiveness program. (That agent, the Pennsylvania Higher Education Assistance Agency, known to most borrowers as FedLoan, plans to terminate its contract with the government at the end of this year.)

“States have long played a critical role in the oversight of higher education and have been at the forefront of protecting student borrowers from fraud and abuse,” said Ms. Healey. “My office looks forward to working with the ministry to ensure the accountability of service officers and the rights of borrowers. “

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