Individual states are able to regulate federal student loan servicers in most circumstances without being preempted by the Higher Education Act of 1965, according to a notice of interpretation issued Monday by the Department of Education.
The new notice replaces an interpretation put into place under former secretary of education Betsy DeVos, which said the HEA and federal law limits the ability of states to conduct oversight over student loan servicing companies. The National Student Legal Defense Network said this action “severely limited states’ ability to regulate and take enforcement action against student loan servicers” and advocated for a reversal of the interpretation.
“The repeal and replacement of the DeVos Notice is a major win for student borrowers and opens the door to greater oversight of student loan servicers who leveraged the Notice in court to evade accountability,” said Dan Zibel, vice president and chief counsel at Student Defense, in a statement. “We hope this move signals the Department of Education is moving quickly towards expanding accountability across student lending and better protecting student borrowers from being defrauded — especially during our recovery from the pandemic.”