Education Department rescinds Trump-era policy restricting state oversight of student loan servicing companies and debt collectors

The Department of Education under the Biden administration is rescinding a Trump-era policy that restricted states’ access to records and information in policing student loan servicing companies.

Richard Cordray, the head of the Federal Student Aid office, announced new guidance Friday that he argued would “make it easier” for state attorneys general and regulators to get information from the FSA and the companies the Education Department hires to manage the federal student loan program.

The new guidance is a reversal of the government’s approach to regulating student loan companies, after the Education Department under then-Secretary Betsy DeVos argued that the federal government should be monitoring the system since the loans are federal assets and fought to curtail states’ involvement in oversight.

In 2017, the FSA issued a memo directing loan servicing companies to send information requests from state attorneys general or another third party to the FSA, which usually rejected them. States then filed lawsuits against FSA and its loan companies as a way to obtain the information. The Trump administration also fought state oversight in court, leading Democratic attorneys general to accuse the administration of impeding investigations and ultimately harming borrowers.

The FSA’s new approach, Cordray said, will be to review data requests from state and local agencies and financial regulators “quickly and approve them whenever it is possible to do so.”

“States and regulators need information when they think a loan servicing company might be violating a law or regulation. To know for sure, they need to look at the companies’ policies and procedures, their handbooks, complaints made by customers, and anything else that shows how the company operates. Getting information from us helps state officials better enforce their laws that protect” federal student loan borrowers, Cordray wrote in a blog post.

“It’s time for us to be a partner, not a roadblock,” he added.

The top Republican on the House Education and Labor Committee argued that the new guidance from Cordray “bows to the whims of state-based Democrat politicians who are more interested in putting companies out of business than helping struggling student loan borrowers.”

“Congress charges FSA with the duty of running the federal student loan program for a reason. Federal programs need federal leadership. Yet COO Cordray’s first order of business is to pass his responsibilities onto others,” GOP Rep. Virginia Foxx of North Carolina said in a statement.

The new federal student aid policy is one of several changes the Biden administration has made in Department o Education policy. In March, the department reversed a controversial Trump-era policy that will lead to the cancellation of roughly $1 billion in student debt for borrowers who were defrauded by their colleges.

The Biden administration, however, is still facing pressure by some congressional Democrats to forgive $50,000 in federal student loan debt per borrower. Advocacy groups are also calling for a complete overhaul of the current borrower defense process.