If Dept. of Ed. Shields Debt Collectors, States Might Fight It
A recent development in a state court case could make it tough for the Dept. of Education to defend student loan debt collectors.
Student loan debt collectors might get backup from the Trump Administration.
In a reversal from its 2016 position, the Department of Education might issue a statement announcing that federal law prohibits state governments from regulating companies that collect student debt for the department, according to internal documents obtained by Bloomberg.
This is in direct contrast to a recent development from October 2017 where state regulators indicated their desire to maintain full control of student loan servicer regulation LendEDU reports.
In just one example, the Washington Attorney General recently called for state legislation to implement regulation on debt collectors and student loan servicers. In addition, Illinois, Massachusetts, and Pennsylvania attorneys general have sued student loan servicers, alleging consumer abuse in the past year.
The Department of Education’s change could dismantle several protections and actions undertaken by the Obama Administration.
In addition to butting heads with the states, the potential change could undo Obama-era oversight over student loan servicers, including Navient Corp. and Nelnet Inc. Serving as government contractors, these companies assist student loan borrowers in the repayment process by collecting their payments and counseling them.
Despite the servicers’ resources, the national student loan default rate exceeds 10 percent of over 45 million student loan borrowers in the US with student loan debt. With that in mind, the CFPB has taken action within the last year against these student loan servicers. For instance, the CFPB sued Navient in 2017 under accusations of mismanaging borrowers’ payments and leading distressed borrowers towards pricey repayment plans. Navient denied these charges and has defended itself.
Commenting on the CFPB’s oversight, Mick Mulvaney, the new CFPB director, claimed the previous administration’s oversight of the companies had been too aggressive. These comments create friction between student loan borrower advocates who have accused these companies of not doing enough to help borrowers manage their loans.
Conflict between the Department of Education and student loan borrower advocacy groups isn’t surprising; in fact, the precedent has already been established. In August, the Department of Education cut ties with the CFPB in overseeing loan companies. Now in February, there’s the indication that states will lose their capability to regulate student loan servicers and debt collectors.
What Borrowers Can Do
More than ever, borrowers need to be their own advocates to resolve any loan repayment issues. It is important for borrowers to know what they owe and determine whether they can manage their payments.
Borrowers also need to understand they can’t change their providers as their loan is owned and overseen by the department. However, the agency might transfer the loan to another provider, subsequently ensuring the borrower could get the customer service it needs.
Options for borrowers may include consolidating student loans if they have more than one loan. Student loan consolidation generally refers to the process of combining two or more loans together. In short, you get a new loan to pay off the old loans; in the end, you have just one loan to pay off. This new consolidation loan also comes with a new interest rate and repayment term. If you're consolidating with a private lender, this is often referred to as student loan refinancing. Some banks offer consolidation loans as interest rates as low as the 3 percent range.
Other possibilities include qualifying for Public Service Loan Forgiveness. A qualified borrower could potentially sign up for the PSLF program, putting him or her on the hook for payments over a set period of time before getting the remaining balance forgiven.
Regardless of the chosen option, it’s always important for borrowers to read all documents carefully, stay in communication with the loan servicer, and seek expert help whenever needed.