March 09, 2021
NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES SENDS LETTER ON BEHALF OF MULTI-STATE COALITION OF REGULATORS, INVITING U.S. SECRETARY OF EDUCATION TO JOIN THEM IN PROTECTING STUDENT LOAN BORROWERS
Explains States’ Critical Role in Protecting Student Loan Borrowers and Supervising Student Loan Servicers
Welcomes Federal Partnership and Coordination in Borrower Protection
Urges Secretary Cardona to Reverse Specific Policies That Undermine States’ Oversight of Student Loan Servicers
The New York State Department of Financial Services (DFS) today sent a letter to U.S. Department of Education Secretary Dr. Miguel Cardona on behalf of a multi-state coalition of state financial regulators congratulating Secretary Cardona on his confirmation and inviting him to partner with states in protecting student loan borrowers across the country. Specifically, the letter calls to the Secretary’s attention two policies instituted by former Secretary Betsy DeVos that obstruct states’ ability to regulate the private companies that service federal student loans. The state regulators urge Secretary Cardona to reverse these policies and to join states’ efforts to ensure the student loan servicing industry is a resource for borrowers, not a barrier to relief or source of harm.
“During the past four years, states have had to fill a void left by the federal government, particularly with respect to protecting student loan borrowers,” said Superintendent of Financial Services Linda A. Lacewell. “With Secretary Cardona’s confirmation, we look forward to having a life-long educator leading the Department of Education as a partner in protecting current and former students and their families. By reversing these obstructive policies, Secretary Cardona can pave the way for states to continue their work overseeing the servicer industry, which has contributed to the ballooning amount of debt and the ongoing student loan debt crisis.”
There is currently approximately $1.6 trillion in outstanding federal student loan debt, owed by 43 million loan borrowers across the country. Approximately $90 billion of that outstanding debt is owed by 2.4 million New Yorkers. These federal loans are all serviced by private companies. These servicers process monthly bills and payments, administer loan repayment and cancellation programs such as Public Service Loan Forgiveness, and are often borrowers’ sole points of contact for help managing their loans. However, for years there have been instances of servicers providing inaccurate information or engaging in harmful misconduct, often resulting in increased costs and extended repayment periods for borrowers. Several states and the federal government have investigated these practices.
In response to this growing crisis, some states have passed laws to require private servicers to obtain licenses to do business in their jurisdictions and requiring them to follow specific servicing rules and protections. New York has passed the Student Loan Servicing Act, which took effect in October 2019 and empowers DFS to license and supervise servicers. At the same time, DFS announced the New York Student Loan Borrower Bill of Rights, which informs New Yorkers of their rights and protections related to student loans under New York law.
Today, DFS submitted a letter on behalf of a coalition of financial regulators from California, Colorado, Connecticut, Illinois, Maine, Massachusetts, New Jersey, New York, Rhode Island, Washington, and Wisconsin calling on Secretary Cardona to join states in their efforts to protect student loan borrowers. Specifically, the letter urges Secretary Cardona to reverse two policies instituted by former Secretary DeVos that obstruct states’ regulation and oversight of the servicing industry.
First, the former administration issued guidance asserting that federal law preempts states’ regulation of the private companies that service federal student loan, including licensing requirements and other consumer protections.
Second, the former administration and the student loan servicing industry attempted to use the federal Privacy Act of 1974 as a shield against states’ requests for information, claiming that federal law prohibited student loan servicers from sharing certain information with states.
Each of these two policies created unnecessary and legally dubious obstacles to states implementing common-sense consumer protections and investigating potential misconduct. The coalition’s letter urges Secretary Cardona to reverse these two policies to allow states to proceed without federal opposition and as a way to partner with states in protecting student loan borrowers.
This letter builds on the DFS’ commitment to #StepUpForStudents and the many ways in which New York State has protected student loan borrowers during the COVID-19 pandemic. DFS urges student loan borrowers to visit its website to learn about managing their student loans: www.dfs.ny.gov/students. Any borrower who is experiencing difficulties with their student loan servicer should file a complaint with the Department.