Department of Education Revises Student Lending Policy; State Regulators Announce Support


The regulators had urged the Department of Education to rescind preemption policies.

9/15/2021 8:00

In a letter to the U.S. Department of Education (DOE) this week, state financial regulators expressed support for its new legal interpretation regarding state regulation of federal student loan servicers and debt collectors, according to a news release.

In a letter to the DOE, the Conference of State Bank Supervisors (CSBS) and North American Collection Agency Regulatory Association (NACARA) stated their strong support of the legal interpretation made in August, which recognizes state authority and supports state and federal cooperation.

The legal interpretation makes clear that neither state laws requiring licensure nor state laws imposing affirmative obligations would be preempted by federal law, according to the letter. 

In addition to voicing their support, the CSBS and NACARA encouraged the DOE to restore provisions in its servicing contracts to require federal student loan servicers and debt collectors to comply with state law and regulation. These provisions, removed under the Trump administration policy, foster cooperative federalism, which improves student loan servicing for the benefit of student borrowers and their families. 

The CSBS and NACARA sought the return of states’ authority to regulate federal student loan servicers and debt collectors, ACA International previously reported.

The CSBS and NACARA also issued a letter to Education Secretary Miguel Cardona in August applauding recent steps by the DOE toward recognizing state authority but calling for more action to stop preemption over state regulation.

Under the Trump administration, the DOE enacted policies that stopped state financial regulators from supervising federal student loan servicers and providing consumer protections available under state law.

The state regulators focused on a request for the DOE “to rescind a notice issued in 2018 that broadly preempts state regulation of federal student loan servicers, to formally recognize that state regulation of federal student loans is independent from federal law and to enable state financial regulators to access federal student loan servicer[s] and debt collection record[s].”

Federal student loan payments are currently on hold though January 2022 because of the COVID-19 pandemic. The state regulators’ request for the DOE to rescind the preemption policy now is important to ensure borrower protections once the payments resume, ACA previously reported.

Read the complete letter from CSBS and NACARA here.

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