Education Secretary DeVos Called Out by State AG Offices, Student Advocates at Congressional Hearing Over Lax Student Loan Servicer Oversight

“We don’t have a partner on the federal level when protecting students, in many ways we have an opponent.”


WASHINGTON, D.C. — Ongoing concerns over Trump Education Secretary Betsy DeVos’ efforts to shield the $1.5 trillion student loan servicing industry from oversight were once again raised by representatives from state attorneys general offices and consumer advocates at a Congressional hearing today. The message was clear: DeVos is not doing enough to protect student borrowers. Or as Joe Sanders, Student Loan Ombudsman and Supervising Attorney, Consumer Fraud Bureau, Illinois Attorney General’s Office testified:“The big change that we’ve seen is that we don’t have a partner on the federal level when protecting students, in many ways we have an opponent.”

DeVos has been previously been called on by state attorneys general to stop withholding student loan information from states and making it more difficult to regulate student loan servicers. Consumer watchdog group Allied Progress challenged Secretary DeVos: if you aren’t willing to hold servicers accountable when they deceive and defraud student borrowers, at least stop interfering with the state regulators who are.

“It’s bad enough Secretary DeVos has slashed student loan regulations and let enforcement against bad actors lapse, but her efforts to derail state regulators that want to pick up her slack and protect student borrowers is really beyond the pale,” said Jeremy Funk, spokesman for Allied Progress. “If the states want to step up and crack down on illegal and abusive student servicer practices, Secretary DeVos should encourage them, not sandbag them.”

When asked during her confirmation process if the Federal Government has a role to play in education, DeVos declared: “It would be fine with me to have myself worked out of a job.”  And based on her efforts to cripple the Department of Education from within, she meant it.  DeVos has rolled back several key consumer protections for student loan borrowers, tried to shut down state efforts and shield borrowers from shady practices from student loan companies, and refused to take any meaningful action against servicers like Navient when caught pushing borrowers towards higher cost repayment plans without offering more affordable options. The Secretary has even stopped her Department from cooperating with the Trump CFPB to root out student loan fraud.

Added Funk: “Student loan services are on contract from the federal government to serve the public need for federal student loans. And because of the way the system was set up where the government assigns servicers to borrowers, the borrowers have no choice in the matter – consumers can’t look for the best deal in terms of customer service – they’re at the mercy of their assigned servicer who is supposed to be working for them. Since borrowers can’t vote with their feet, they rely on officials like Betsy DeVos to hold these companies accountable. But instead of holding them accountable to the law, the Trump Administration prefers to look the other way. The fact that DeVos has surrounded herself with servicer and for-profit school insiders at the Department may explain why.” 

WHAT YOU NEED TO KNOW:

State Attorneys General Have Called On Betsy DeVos To Stop Withholding Student Loan Information From States Trying To Regulate The Student Loan Servicing Industry

State Attorneys General Have Called On Secretary Betsy DeVos To Stop Withholding Student Loan Information From States And Making It Harder To Regulate Student Loan Servicers.

In April 2019, 21 State Attorneys General Called On Secretary Betsy DeVos To Reverse A Trump Administration Decision To Withhold Student Loan Information From State Authorities And Law Enforcement Agencies.

In April 2019, Twenty-One State Attorneys General Sent A Letter To Secretary Betsy Devos Calling On Her “To End A Recent Decision To Withhold Student Loan Information From Their Offices And Other Law Enforcement Agencies.” “Twenty-one state attorneys general are asking Education Secretary Betsy DeVos to end a recent decision to withhold student loan information from their offices and other law enforcement agencies. ‘Student loan information is vital to our efforts to protect consumers from illegal, unfair, abusive or deceptive practices by actors in the higher education industry,’ the attorneys wrote in a letter to DeVos dated April 4. ‘The Department’s abandonment of its policy of disclosing records … represents a significant step away from the interests of consumers and toward the interests of corporate actors.’” [Danielle Douglas-Gabriel, “Attorneys general say Trump administration is withholding critical student loan information,” The Washington Post, 04/05/19]

  • The Trump Administration Has “Issued Guidance Telling State Regulators To Back Off Those Student Loan Servicing Companies” But States “Say They Must Ramp Up Supervision Of Student Loan Servicers Because The Federal Government Has Abdicated Its Responsibility.” “A year ago, the Trump administration issued guidance telling state regulators to back off those student loan servicing companies, arguing that only the federal government has the authority to oversee its contractors. State authorities say they must ramp up supervision of student loan servicers because the federal government has abdicated its responsibility. But the added scrutiny has created consternation among servicers, who lobbied DeVos to prevent states from imposing additional rules and regulations.” [Danielle Douglas-Gabriel, “Attorneys general say Trump administration is withholding critical student loan information,” The Washington Post, 04/05/19]

A Group Of 26 State Attorneys Generals Urged Betsy DeVos To “‘Reject’” Student Loan Servicers’ Efforts To Interfere With Oversight And Regulation By State Authorities.

In October 2017, A Bipartisan Group Of 26 State Attorneys General Called On Betsy Devos To “‘Reject An Ongoing Campaign By Student Loan Servicers And Debt Collectors To Secure Immunity For Themselves From State-Level Oversight And Enforcement.’”

In October 2017, A Bipartisan Group Of 26 State Attorneys General Called On Betsy Devos To “‘Reject An Ongoing Campaign By Student Loan Servicers And Debt Collectors To Secure Immunity For Themselves From State-Level Oversight And Enforcement.’” “A bipartisan group of 26 state attorneys general — including reliably conservative Montana, Tennessee, Kansas and Texas — wrote to DeVos in October [2017], urging her to ‘reject an ongoing campaign by student loan servicers and debt collectors to secure immunity for themselves from state-level oversight and enforcement.’ ‘There is no principled reason for the Department to weaken or box out states just as our combined federal-state efforts against abusive practices in the student loan servicing industry have begun to bear fruit,’ the attorneys general wrote. ‘Nor is there any justification to seek to interfere with the traditional police power of states to protect their own residents from abuses in the marketplace.’” [Cory Turner and Chris Arnold, “Education Department Wants To Protect Student Loan Debt Collectors,” NPR, 02/27/18]

A Bipartisan Group Of 51 State Attorneys General Have Called On Secretary Betsy DeVos Stop Requiring Permanently Disabled Military Veterans To Fill Out Onerous Paperwork To Qualify For Student Loan Forgiveness.

In May 2019, A Bipartisan Group Of 51 State Attorneys General Signed A Letter To Betsy Devos Requesting That She Automatically Cancel The Student Debt Of Eligible Disabled Members—Instead Of Requiring Them To Fill Out Paperwork First.

In May 2019, The Attorneys General Of 51 States And Territories Signed A Letter Asking Education Secretary Betsy DeVos To “Stop Requiring That Disabled Veterans Fill Out Paperwork To Become Eligible For Federal Student Loan Forgiveness” And To “Exercise Her Power To Automatically Cancel The Debt.” “The attorneys general of 51 states and territories on Friday asked Education Secretary Betsy DeVos to stop requiring that disabled veterans fill out paperwork to become eligible for federal student loan forgiveness. Instead, they want DeVos to exercise her power to automatically cancel the debt. Veterans who are ‘totally and permanently’ disabled are entitled under federal law to have their student loans canceled, but the Trump administration’s current process for doing so is ‘inadequate,’ the bipartisan group of attorneys general wrote in a letter to DeVos.” [Michael Stratford, “51 attorneys general urge DeVos: Erase disabled veterans’ student debt,”Politico, 05/24/19]

  • “Because America’s veterans deserve better, we ask the Department to develop an automatic discharge process to ensure that all eligible veterans can have their student loans forgiven. Any concerns that some disabled veterans might not want their student loans discharged can be addressed by providing veterans notice and an opportunity to opt out of loan forgiveness or to seek reinstatement of their loans.’” [Letter from Attorneys General to Education Secretary Betsy DeVos, National Association of Attorneys General, 05/24/19]

The Department Of Education Claimed That Automatic Loan Forgiveness For Disabled Veterans Could Have “‘Unintended Consequences’” Like Raising Veterans’ Tax Bills—Even Though Loan Discharges For Disabled Borrowers Aren’t Counted As Taxable Income By The IRS And Most States.

The Department Of Education Claimed That Automatic Loan Forgiveness For Disabled Veterans Could Have “‘Unintended Consequences’” And “Could Raise Veterans’ Tax Bills Or Inhibit Them From Taking Out More Student Loans.” “In a statement to NPR, the Education Department said it recognized the sacrifices that veterans make for their country, adding that it has worked to streamline the TPD discharge process. ‘While we have worked to make this process as easy and as seamless as possible for veterans, the last thing we want to do is cause unintended consequences for them,’ according to the statement. The department said discharges could raise veterans’ tax bills or inhibit them from taking out more student loans.” [Cat Schuknecht, “47 States Call On Betsy Devos To Forgive Student Loans For Disabled Veterans,”NPR, 05/25/19]

The 51 Attorneys General Dismissed The Education Department’s “Concerns About Borrowers’ Potential Tax Liability” Because, They Noted, “Federal Tax Law Now Excludes Loan Discharges For Disabled Borrowers From Taxable Income, And Most States’ Tax Codes Do Likewise.” “Although the Department of Education has raised concerns about borrowers’ potential taxliability, federal tax law now excludes loan discharges for disabled borrowers from taxableincome, and most states’ tax codes do likewise. Moreover, we think it likely that most borrowerswould prefer to have one hundred percent of their outstanding loans discharged, even if thisresulted in an increase to their state tax bill. However, in order to protect those borrowers andrespect each borrower’s right to make the choice that best fits his or her individualcircumstances, the Department could notify borrowers eligible for automatic discharges of thepotential state income tax consequences and allow them to opt out of having their loansautomatically discharged or request to have their loans reinstated.” [Letter from Attorneys General to Education Secretary Betsy DeVos, National Association of Attorneys General, 05/24/19]

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