States, student-loan companies and the federal government are in the midst of a battle over whether the firms where millions of borrowers send their payments each month must follow state laws — a clash that has the potential to wind up in the Supreme Court.
This year could be a decisive one for the fight. For borrowers, the outcome of these cases could determine whether they’re treated fairly by their student-loan companies, said Xavier Becerra, the attorney general of California, who filed a suit against student-loan servicer Navient last year, accusing the company of steering borrowers towards costly repayment plans.
That could mean the difference between digging out of their debt as quickly as possible or lingering unnecessarily in repayment.
“You’re talking about an industry where billions are in play here,” Becerra said. “If you secure some fair treatment in the collection of loans and if you ensure that people are being steered into the most efficient and sound way to repay their loans you’re talking about billions of dollars,” borrowers might save, he said.
Navient has claimed the allegations in the California suit and others are unfounded.
Servicers say they don’t have to follow state laws
Several cases have been winding their way through the legal system accusing student-loan companies of violating state law. Meanwhile, several states have been also been working to enact new laws cracking down on these firms, in some cases prompting legal action from the companies challenging the regulations.
Both the lawsuits accusing student-loan companies of violating state law and the push to enact new state student-loan laws arose out of claims from borrowers and advocates that the firms aren’t working in borrowers’ best interest. In fighting the suits and the new regulations, the companies have claimed they aren’t subject to state law, given the federal laws governing the student-loan program. That claim arises from a concept called “preemption” — the idea that federal law supersedes state law in cases where they’re in conflict.
Some courts have agreed with the companies, others have sided with the states.
Late last year, judges overseeing cases filed by the Pennsylvania and California attorneys general against student-loan giant Navient ruled that the suits could move forward, despite the company’s request they be dismissed. In the Pennsylvania case, the judge used a 70-page opinion to knock down Navient’s claims that it’s immune to the state laws under which the AG sued the company. Earlier this month, Navient asked the judge to allow the preemption question to be heard by an appellate court.
But judges have taken different approaches in other cases. In the Southern District of Illinois and the Northern District of Florida, judges found that borrowers’ claims under state law — accusing the servicer Great Lakes of misleading them — are preempted by federal law. Both decisions are now being appealed.
In Washington, D.C., where the Student Loan Servicing Alliance, a trade group, is suing the city over its student-loan servicer regulations, the court found that federal law preempted the city’s authority to license student-loan companies in cases where they’re servicing loans owned or held by the federal government. But the court also found that D.C. had the authority to regulate student-loan companies servicing commercially-owned, but government-backed student loans. Both sides are appealing parts of the ruling.
A Supreme Court battle seems increasingly likely
David Rubenstein, a professor at Washburn University’s school of law and an expert on preemption, said the “litigation will continue through the lower courts and is likely to result in different outcomes across the country.”
“The national importance of this litigation, combined with split decisions among appellate courts, make these cases prime candidates for Supreme Court review in the foreseeable future,” he said...
Servicers say ‘conflicting requirements could make it more confusing’
For servicers, the outcome of the litigation will help clarify whether they’re only subject to oversight by the federal government and their contracts with the Department of Education or whether they have to follow state laws across the country, which they say are in conflict with those requirements.
Scott Buchanan, the executive director of the Student Loan Servicing Alliance, said in an email that “conflicting requirements at the state and federal level could make it more confusing for the very borrowers we all want to help.” He said that servicers want to work with states on ways to better inform borrowers about how they can access resources to help them pay down their debt, like information on company websites or phone calls with their representatives.
Still, he said. “The courts have made clear that most federal student loans are serviced by federal government contractors and can’t be licensed by states,” in reference to the D.C. decision currently being appealed.
The role of the Trump administration
The controversy over whether student-loan companies are subject to state law began in earnest shortly after Donald Trump was elected president. In the few years leading up to his election, states began passing laws to regulate student-loan companies, citing what they viewed as lax oversight from the federal government. In many cases, these companies are hired by the federal government to manage its student-loan portfolio.
In December 2016, the National Council of Higher Education Resources, a trade group, wrote to the Trump transition team asking that officials review these state laws and “determine that federal law and contractual requirements preempt state law when it comes to federal student loan servicing.” In July 2017, the group wrote to Secretary of Education, Betsy DeVos, expressing a similar request. The following year DeVos issued a memo arguing that state laws governing student-loan servicers are indeed preempted by federal regulations.
In court cases across the country accusing student-loan companies of steering borrowers towards costly repayment programs, among other allegations, the student-loan firms have argued they’re immune to these state laws, often invoking the DeVos memo.
Some of the recent opinions in these cases, the Pennsylvania ruling in particular, have pushed back on the idea that DeVos’s memo, which was issued outside the normal regulatory process, holds any weight. Student-loan borrower advocates are bullish on the idea that student-loan companies are subject to state law will hold up in court.
“This argument being pushed by both industry and the Department of Education that student-loan companies are above the law has failed from coast to coast,” said Seth Frotman, the former student-loan ombudsman at the Consumer Financial Protection Bureau and the executive director of the Student Borrower Protection Center: “2019 will be a year for accountability over a very broken student-loan industry and one where we hope to see justice for countless student loan borrowers who have been ripped off at every turn,” he added.
Loan servicers’ immunity from state laws is being put to the test
Some legal advocates are even working to challenge decisions where courts have found student-loan companies are immune to state law. The National Student Legal Defense Network, an organization founded by lawyers who worked in the Education Department during the Obama administration, is representing borrowers appealing decisions in two different cases accusing their student-loan company, Great Lakes, of violating state law. In both cases, lower court judges have ruled that the borrowers’ claims are preempted.
In one case, borrowers have accused Great Lakes of misleading them in their pursuit of loan forgiveness under a government program for public servants. In the other, a borrower accused the company of systematically steering her into an unnecessarily costly repayment plan. A Great Lakes representative didn’t respond to a request for comment.
Dan Zibel, the vice president and chief counsel at NSLDN, said his organization is “cautiously optimistic” about the outcome of the cases, noting that “a growing number of courts are rejecting the preemption arguments.” Still, he said the outcome is hard to predict.
“I don’t think we’ve seen the final word on this yet,” Zibel said. If the borrowers Zibel represents prevail that decision could carry more weight because it would be coming from an appellate court.
It’s still too early to tell exactly how the courts will come down on these questions. But the fact that some judges are allowing the cases to proceed means that student-loan borrowers, advocates and other stakeholders will get a chance to see whether the allegations against these companies have factual and legal merit.
“Through discovery and appellate judicial review, these claims are going to be put to the test,” Rubenstein said.
Don't have the time to wait out a supreme court battle? Call us today at 1-833-393-9425 to get your student loan debt completely forgiven!
Source: https://www.marketwatch.com/story/we-may-soon-find-out-whether-student-loan-companies-have-to-follow-state-law-2019-01-28
This year could be a decisive one for the fight. For borrowers, the outcome of these cases could determine whether they’re treated fairly by their student-loan companies, said Xavier Becerra, the attorney general of California, who filed a suit against student-loan servicer Navient last year, accusing the company of steering borrowers towards costly repayment plans.
That could mean the difference between digging out of their debt as quickly as possible or lingering unnecessarily in repayment.
“You’re talking about an industry where billions are in play here,” Becerra said. “If you secure some fair treatment in the collection of loans and if you ensure that people are being steered into the most efficient and sound way to repay their loans you’re talking about billions of dollars,” borrowers might save, he said.
Navient has claimed the allegations in the California suit and others are unfounded.
Servicers say they don’t have to follow state laws
Several cases have been winding their way through the legal system accusing student-loan companies of violating state law. Meanwhile, several states have been also been working to enact new laws cracking down on these firms, in some cases prompting legal action from the companies challenging the regulations.
Both the lawsuits accusing student-loan companies of violating state law and the push to enact new state student-loan laws arose out of claims from borrowers and advocates that the firms aren’t working in borrowers’ best interest. In fighting the suits and the new regulations, the companies have claimed they aren’t subject to state law, given the federal laws governing the student-loan program. That claim arises from a concept called “preemption” — the idea that federal law supersedes state law in cases where they’re in conflict.
Some courts have agreed with the companies, others have sided with the states.
Late last year, judges overseeing cases filed by the Pennsylvania and California attorneys general against student-loan giant Navient ruled that the suits could move forward, despite the company’s request they be dismissed. In the Pennsylvania case, the judge used a 70-page opinion to knock down Navient’s claims that it’s immune to the state laws under which the AG sued the company. Earlier this month, Navient asked the judge to allow the preemption question to be heard by an appellate court.
But judges have taken different approaches in other cases. In the Southern District of Illinois and the Northern District of Florida, judges found that borrowers’ claims under state law — accusing the servicer Great Lakes of misleading them — are preempted by federal law. Both decisions are now being appealed.
In Washington, D.C., where the Student Loan Servicing Alliance, a trade group, is suing the city over its student-loan servicer regulations, the court found that federal law preempted the city’s authority to license student-loan companies in cases where they’re servicing loans owned or held by the federal government. But the court also found that D.C. had the authority to regulate student-loan companies servicing commercially-owned, but government-backed student loans. Both sides are appealing parts of the ruling.
A Supreme Court battle seems increasingly likely
David Rubenstein, a professor at Washburn University’s school of law and an expert on preemption, said the “litigation will continue through the lower courts and is likely to result in different outcomes across the country.”
“The national importance of this litigation, combined with split decisions among appellate courts, make these cases prime candidates for Supreme Court review in the foreseeable future,” he said...
Servicers say ‘conflicting requirements could make it more confusing’
For servicers, the outcome of the litigation will help clarify whether they’re only subject to oversight by the federal government and their contracts with the Department of Education or whether they have to follow state laws across the country, which they say are in conflict with those requirements.
Scott Buchanan, the executive director of the Student Loan Servicing Alliance, said in an email that “conflicting requirements at the state and federal level could make it more confusing for the very borrowers we all want to help.” He said that servicers want to work with states on ways to better inform borrowers about how they can access resources to help them pay down their debt, like information on company websites or phone calls with their representatives.
Still, he said. “The courts have made clear that most federal student loans are serviced by federal government contractors and can’t be licensed by states,” in reference to the D.C. decision currently being appealed.
The role of the Trump administration
The controversy over whether student-loan companies are subject to state law began in earnest shortly after Donald Trump was elected president. In the few years leading up to his election, states began passing laws to regulate student-loan companies, citing what they viewed as lax oversight from the federal government. In many cases, these companies are hired by the federal government to manage its student-loan portfolio.
In December 2016, the National Council of Higher Education Resources, a trade group, wrote to the Trump transition team asking that officials review these state laws and “determine that federal law and contractual requirements preempt state law when it comes to federal student loan servicing.” In July 2017, the group wrote to Secretary of Education, Betsy DeVos, expressing a similar request. The following year DeVos issued a memo arguing that state laws governing student-loan servicers are indeed preempted by federal regulations.
In court cases across the country accusing student-loan companies of steering borrowers towards costly repayment programs, among other allegations, the student-loan firms have argued they’re immune to these state laws, often invoking the DeVos memo.
Some of the recent opinions in these cases, the Pennsylvania ruling in particular, have pushed back on the idea that DeVos’s memo, which was issued outside the normal regulatory process, holds any weight. Student-loan borrower advocates are bullish on the idea that student-loan companies are subject to state law will hold up in court.
“This argument being pushed by both industry and the Department of Education that student-loan companies are above the law has failed from coast to coast,” said Seth Frotman, the former student-loan ombudsman at the Consumer Financial Protection Bureau and the executive director of the Student Borrower Protection Center: “2019 will be a year for accountability over a very broken student-loan industry and one where we hope to see justice for countless student loan borrowers who have been ripped off at every turn,” he added.
Loan servicers’ immunity from state laws is being put to the test
Some legal advocates are even working to challenge decisions where courts have found student-loan companies are immune to state law. The National Student Legal Defense Network, an organization founded by lawyers who worked in the Education Department during the Obama administration, is representing borrowers appealing decisions in two different cases accusing their student-loan company, Great Lakes, of violating state law. In both cases, lower court judges have ruled that the borrowers’ claims are preempted.
In one case, borrowers have accused Great Lakes of misleading them in their pursuit of loan forgiveness under a government program for public servants. In the other, a borrower accused the company of systematically steering her into an unnecessarily costly repayment plan. A Great Lakes representative didn’t respond to a request for comment.
Dan Zibel, the vice president and chief counsel at NSLDN, said his organization is “cautiously optimistic” about the outcome of the cases, noting that “a growing number of courts are rejecting the preemption arguments.” Still, he said the outcome is hard to predict.
“I don’t think we’ve seen the final word on this yet,” Zibel said. If the borrowers Zibel represents prevail that decision could carry more weight because it would be coming from an appellate court.
It’s still too early to tell exactly how the courts will come down on these questions. But the fact that some judges are allowing the cases to proceed means that student-loan borrowers, advocates and other stakeholders will get a chance to see whether the allegations against these companies have factual and legal merit.
“Through discovery and appellate judicial review, these claims are going to be put to the test,” Rubenstein said.
Don't have the time to wait out a supreme court battle? Call us today at 1-833-393-9425 to get your student loan debt completely forgiven!
Source: https://www.marketwatch.com/story/we-may-soon-find-out-whether-student-loan-companies-have-to-follow-state-law-2019-01-28
Clash Between Student-Loan Companies and States Could Wind up in the Supreme Court
Reviewed by Student Loans Center
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January 29, 2019
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Reviewed by Student Loans Center
on
January 29, 2019
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