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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. Under Betsy DeVos’s leadership, the Department of Education attempted to insulate loan servicers from state oversight and regulation, and to prevent student borrowers from protecting themselves by making claims under state consumer protection law.

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.

The DeVos Department of Education’s position was 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 did 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.

Not surprisingly, the loan servicing industry largely agreed with Secretary DeVos’s position, and individual servicing companies made similar assertions in defending cases brought by student borrowers who allege mistreatment or deception by their servicer.

Student Defense has been focused on this issue since opening its doors, and the stakes are high. Through the Preemption Project and a combination of legal advocacy, policy initiatives, and public discourse, Student Defense explained the problems with the 2018 Notice, persuaded courts that it was “unpersuasive,” and called for its repeal.

On August 12, 2021, the Department of Education did exactly that: it rescinded the March 2018 interpretation and called for comment on the precise scope of preemption under the Higher Education Act.

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