A group of 20 state attorneys general, the D.C. attorney general, and the Executive Director of the Office of Consumer Protection of Hawaii have sent a letter to U.S. Department of Education Secretary Betsy DeVos criticizing the ED’s withdrawal of various memoranda issued during the Obama Administration regarding federal student loan servicing reforms.
The memoranda were intended to guide the development of provisions in new contracts to be entered into by the ED with servicers it selected for a new federal student loan servicing system and included directions to contractors to designate, train, and appropriately compensate specialized servicing personnel to assist at-risk and certain other borrowers. and standards to provide consistency in the handling, processing, and application of payments by servicers and other servicing practices. Secretary DeVos had indicated that withdrawal of the memoranda was necessary to “negate any impediment, ambiguity or inconsistency” in the ED’s approach to acquiring new federal student loan servicing capabilities.
In their letter, the state AGs assert that the ED’s “stated rationale does not justify summarily denying student borrowers [the] basic protections [provided by the new servicing standards].” The state AGs highlight requirements for servicers to apply overpayments to loans with the highest interest rates unless instructed otherwise by the borrower and to inform a borrower of income-driven repayment options before placing the borrower in forbearance or deferment. They note that ‘[s]ervicers’ failure to comply with such standards may be independent violations of state law.”