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Preemption Project

Companies that collect payments on federal student loans, called servicers, must comply with the consumer protection laws of each state in which they operate. However, under Betsy DeVos’s leadership, the Department of Education has attempted to insulate loan servicers from state oversight and regulation, and prevent student borrowers from protecting themselves by making claims under state consumer protection law.

The Department of Education’s position is that virtually all state laws are preempted by the federal Higher Education Act, and in March 2018 they laid out their reasoning in a Notice of Interpretation. That Notice does not have the force of law, but it is part of a larger battle over the extent to which federal law preempts states’ ability to protect their residents.

Student Defense has been focused on this issue since opening its doors, and the stakes are high. Every state has significant consumer protection rules on the books, and those protections could evaporate for student borrowers if the Department of Education has its way. These consumer protection rules apply to virtually all entities that operate within states, and there is simply no reason why student loan servicers should be immune from liability for acting unfairly or deceptively, or making misrepresentations to student loan borrowers.

A remarkable bipartisan coalition opposes DeVos’s regulatory power grab, including 26 state attorneys general, many members of Congress from both parties, the National Governors Association, and consumer advocate groups such as the National Consumer Law Center, the Center for Responsible Lending, and the Lawyers’ Committee for Civil Rights.

Not surprisingly, the loan servicing industry has largely agreed with the Department of Education’s position, and individual servicing companies have made similar claims in defending cases brought by student borrowers who allege mistreatment or deception by their servicer.

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