Federal Student Loan Politics Go Local

Two state-backed agencies ditch loan-servicing lobby group due to pressure from lawmakers who back tougher regulation of student loans -- but servicers themselves haven't budged on state oversight issue.

April 11, 2018

Two state-backed agencies charged with addressing the cost of college in recent weeks have said they will withdraw from a national lobby group that over the past year has pressured Congress and the Trump administration to block efforts at the state level to regulate student loans.

Those announcements are the latest development in an ongoing battle between state regulators -- including both Democratic and GOP officials -- and servicers that have argued only the federal government should set standards for the entities that handle federal student loans.

But the defections may say less about dissatisfaction inside the ranks of loan servicers with the strategy of the National Council of Higher Education Loan Resources, the biggest servicer lobby group, than about elected Democrats’ decision to take a tough line against further efforts to roll back regulations. Elected officials in a handful of states have recently enacted their own standards for the companies that handle federal student loans -- arguing, in some cases, that the moves are necessary because of the Trump administration's lack of interest in federal oversight.

The departures from NCHER appeared to be backlash to a decision last month by Betsy DeVos, the education secretary, to side with the servicing group and tell states they don't have the authority to regulate federal student loans.

The Massachusetts Educational Financing Authority said last week it was withdrawing its membership in NCHER, after receiving pressure from state lawmakers. Although the state agency noted that lobbying on federal student loans has no impact on its organization, which provides low-cost private loans, MEFA said it was withdrawing out of respect for concerns from elected officials.

On Monday, the New Jersey Higher Education Student Assistance Authority, which provides students with financial information for pursuing a postsecondary degree, issued an even stronger statement in announcing its withdrawal from the servicing lobby group.

"On behalf of New Jersey's students and families, we are taking a stand against NCHER's efforts to lobby against states’ ability to protect student borrowers," said David Socolow, the organization’s executive director, in a statement. "We do not support NCHER's goal of federal pre-emption that would make it more difficult for New Jersey to regulate servicers of student loans.”

It’s no coincidence that the agencies leaving the group are based in these two states. Maura Healey, Massachusetts' Democratic attorney general, has filed multiple lawsuits against loan-servicing companies and won millions in judgments for borrowers.

Phil Murphy, New Jersey's Democratic governor, was elected last year after promising to deliver on a long list of progressive priorities, including free community college and consumer protections for student loans.

NCHER has about 90 member organizations, including a wide range of companies involved in the handling of student loans. While its membership includes big servicing companies with large volumes of federal student loan accounts, for instance, neither of the state-based agencies handle repayments of federal student loans.

“They don’t really have a dog in this fight,” said Ben Barrett, a policy analyst at New America who tracks loan-servicing issues.

An American Federation of Teachers report earlier this year found that the Massachusetts agency contributed $88,646 in dues to NCHER between 2010 and 2017. Last year, it sent $12,800 to the council. The New Jersey entity, meanwhile, contributed $147,043. Losing those dues isn’t likely to break the lobby group’s finances, but it’s enough to catch the eyes of state lawmakers who are unhappy with efforts to block regulations.

Fifty Massachusetts state legislators in March sent a letter to MEFA, which is a quasi-public entity, saying they were troubled that an agency formed by the Legislature was contributing to efforts to block protections for student loan borrowers.

In a written statement, James Bergeron, NCHER's president, didn’t directly address the two departures. He said the council supports setting loan-servicing standards that are both high quality and uniform throughout the country.

“We continue to urge the U.S. Department of Education to work with states to incorporate these standards in a common manual of servicing practices that all servicers will be held to and that provide strong protections for all students,” he said. “This shouldn’t be a debate over enforcing strong consumer protections -- that’s a given that NCHER supports.”

At the federal level, though, much of the debate has focused on exactly who has the authority to enforce those consumer protections. NCHER and other industry groups have argued to the Trump administration and lawmakers that authority lies with the federal government to set standards for loan servicers. (The Education Finance Council, another industry group, has argued that where federal and state law conflict, federal law should take precedence.) And they've warned that state regulations could lead to a patchwork of requirements, making their work more difficult and, in some cases, unaffordable.

The industry groups have had success with some key figures in Washington. The PROSPER Act, House Republicans’ plan to reauthorize the federal law governing higher education, included language barring states from regulating entities that handle federal student loans. The legislation was voted out of committee in December, but there are no current plans for a floor vote.

DeVos in March weighed in on the loan-servicing debate, issuing an interpretation of federal law that found the federal government only, and not the states, had authority to regulate servicers.

That statement was condemned by Democratic state officials. And in Massachusetts, lawmakers were displeased to learn that a state-backed agency contributes membership fees to an industry group that had pushed for the Education Department to take a position against state regulations.

Colleen Campbell, associate director for postsecondary education at the Center for American Progress, said it was notable that the two organizations that have pulled their membership from NCHER both come from Democratic-led states, including one where elected officials have made a point of pushing for stronger protections for student borrowers. But she said there are no signs yet of a mass exodus of entities entrenched in the federal student loan program.

“It’s telling that we have not seen any major private-sector servicer pull out of NCHER, and we have also not seen any of the major state-based servicers pull out -- particularly those who currently are part of the federal student loan program,” she said.


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