- Division of Banks
March 9, 2021
MASSACHUSETTS DIVISION OF BANKS JOINS MULTI-STATE COALITION OF REGULATORS, INVITING U.S. SECRETARY OF EDUCATION TO JOIN THEM IN PROTECTING STUDENT LOAN BORROWERS
Explains States’ Critical Role in Protecting Student Loan Borrowers and Supervising Student Loan Servicers
Welcomes Federal Partnership and Coordination in Borrower Protection
Urges Secretary Miguel Cardona to Reverse Specific Policies That Undermine States’ Oversight of Student Loan Servicers
The Massachusetts Division of Banks joined a multi-state coalition of state financial regulators congratulating Secretary Miguel Cardona on his confirmation and inviting him to partner with states in protecting student loan borrowers across the country. The letter calls to the Secretary’s attention two existing U.S. Department of Education policies that obstruct states’ ability to regulate the private companies that service federal student loans. The state regulators urge Secretary Cardona to reverse these policies and join states’ efforts to ensure the student loan servicing industry is a resource for borrowers, not a barrier to relief or source of harm. The legacy policies have created unnecessary obstacles to states implementing common-sense consumer protections and investigating potential misconduct:
DOE issued guidance asserting that federal law preempts states’ regulation of the private companies that service federal student loan, including licensing requirements and other consumer protections.
DOE attempts to use the federal Privacy Act of 1974 as a shield against states’ requests for information, claiming that federal law prohibited student loan servicers from sharing certain information with states.
Today, the New York State Department of Financial Services submitted the letter on behalf of a coalition of financial regulators from 11 states calling on Secretary Cardona to reverse these two policies to allow states to proceed without federal opposition and as a way to partner with states in protecting student loan borrowers.
“With Secretary Cardona’s confirmation, we look forward to partnering with the Department of Education in protecting current and former students and their families,” said Commissioner of Banks Mary L. Gallagher. “By reversing these obstructive policies, Secretary Cardona can pave the way for state regulatory agencies to continue our work overseeing the student loan servicer industry and meet our objectives under state law.”
There is approximately $1.6 trillion in outstanding federal student loan debt, owed by 43 million loan borrowers across the country. Approximately $33 billion of that outstanding debt is owed by 855,500 Massachusetts borrowers. These federal loans are all serviced by private companies who process monthly bills and payments, administer loan repayment and cancellation programs such as Public Service Loan Forgiveness, and are often borrowers’ sole points of contact for help managing their loans. However, for years there have been instances of servicers providing inaccurate information or engaging in harmful misconduct, often resulting in increased costs and extended repayment periods for borrowers. Several states and the federal government have investigated these practices.
In response to this growing crisis, some states have passed laws to require private servicers to obtain licenses to do business in their jurisdictions and requiring them to follow specific servicing rules and protections. Massachusetts recently passed Chapter 358 of the Acts of 2020, which in part sets forth licensing and supervisory requirements for Student Loan Servicers. The law takes effect on July 1, 2021 and will be implemented by the Division of Banks with a Student Loan Ombudsman housed within the office of the Commonwealth’s Attorney General.
Read a copy of the submitted letter on the Massachusetts Division of Banks website here.