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Cordray abandons Trump-era policy hampering state investigations into student loan companies

In 2017, the Education Department ordered loan companies working for the agency to avoid responding directly to requests for information from third parties, such as state attorneys general. Instead, he demanded that such requests for information be sent to the ministry, which frequently rejected them.

Trump-era politics have hampered outside investigations or oversight of the handful of companies hired by the Education Department to collect the $ 1.5 trillion in federal student loan debt owed by roughly $ 40 million. Americans. The companies include Navient, Nelnet, and the Pennsylvania Higher Education Assistance Agency, or PHEAA, which operates under the FedLoan Servicing brand.

Under a new policy outlined by Cordray on Friday, the Education Department will create a “streamlined and expedited process” for all federal, state or local authorities to request access to the information they need to investigate or oversee student loan companies.

Cordray, a former Ohio attorney general, said he wanted to make it easier for state attorneys general and other regulators to access the information they need to oversee companies that collect federal student loans. “It’s time for us to be a partner, not a hindrance,” Cordray wrote in a blog post announcing the change.

“States and regulators need information when they believe a loan service company might be in violation of a law or regulation,” Cordray added. “To be sure, they need to look at companies’ policies and procedures, their manuals, customer complaints and anything that shows how the company is operating.”

Student loan managers have faced a barrage of lawsuits by state attorneys general in recent years, accusing them of mistreating borrowers in violation of state consumer protection laws.

Navient is defending against lawsuits in six states: Illinois, Pennsylvania, California, Mississippi, New Jersey and Washington.

The PHEAA recently settled a lawsuit with Massachusetts Attorney General Maura Healey, a Democrat, over her handling of the civil service loan forgiveness program. The company is also facing a similar lawsuit from New York Attorney General Letitia James, a Democrat.

Earlier this week Colorado Attorney General Phil Weiser, a Democrat, sued the PHEAA over its refusal to turn the files over to state regulators seeking to assess the company’s handling of federal student loans during the pandemic. .

An Education Department official told POLITICO that the agency contacted PHEAA on Friday regarding the Colorado lawsuit. The state’s request for information will fall under the new, more permissive Biden administration policy, the official said.

Consumer advocates and Democratic state attorneys general had urged the Biden administration to take a more collaborative approach to monitoring student loan services.

The student loan industry, which lobbied the Trump administration to join its fight against state regulation, argued that states lack the power to regulate businesses when they work for the federal government. Businesses also say it would be too cumbersome to have to comply with different sets of rules in different states.

Rep. Virginia Foxx, the top Republican on the House education committee, lambasted the new approach, saying Cordray’s advice “bends to the whims of state-based Democratic politicians who are more interested in putting of bankrupt businesses that help troubled student loan borrowers. “

“Congress charges the FSA with managing the federal student loan program for a reason. Federal programs need federal leadership, ”said Foxx, of North Carolina. “Yet the first goal of COO Cordray is to transfer his responsibilities to others. “

Cordray’s new policy will also make it easier for the Consumer Financial Protection Bureau, which he previously headed, to oversee federal student loan services. The CFPB and Trump Education Department have often fought over the Office of Consumer’s access to information about federal student loan services.

Kathy Kraninger, the director of the CFPB appointed by Trump, accused the Education Department in 2019 of obstructing access to the information regulators need to oversee lending services. The CFPB and the Education Ministry later said they had reached an agreement to jointly oversee the companies, but did not provide public details on how it would work.

In addition to the directive that Cordray rescinded on Friday, the Trump administration also issued a legal opinion declaring federal student loan officers banned by state rules. The memo, which the Biden administration has not rescinded, argues that federal law takes precedence over state regulation of student loan service companies.

The Education Ministry declined to say on Friday whether the administration plans to remove or make changes to DeVos’ legal notice. A department official only said that the administration “is examining how federal laws interact with the state’s efforts to ensure that student loan borrowers receive high-quality service.”

State attorneys general, including some Republicans, have strongly opposed the Trump administration’s efforts to anticipate state laws regarding the service of student loans. State banking regulators and the National Governor’s Association have also pushed back against the policies of DeVos, which they said interfered with states’ powers to regulate companies operating within their borders.

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