Education Dept. blocks state regulations for student loan servicers

March 13 (UPI) -- The Department of Education is opposing state attempts to regulate loan-servicing companies, saying the efforts make student loans more costly while consumer advocates say they're needed to protect students from deceptive practices.

The department published a notice of interpretation to the Federal Register last week saying states must defer to the federal government in oversight of the companies that manage student loans. The notice comes as about a dozen states are either working on or have passed legislation to regulate the companies in an effort to stop mismanagement.

Since Betsy DeVos was sworn in as education secretary, the department has taken steps to reduce the regulatory burden on loan-servicing companies, last week's notice marking the latest step.

"State regulation of the servicing of direct loans impedes uniquely federal interests," the notice reads. "State regulation of the servicing of the FFEL [Family Federal Education Loan] Program is pre-empted to the extent that it undermines uniform administration of the program."

The federal government says individual state laws overstep federal oversight and add administrative costs that will be passed on to loan recipients.

California Attorney General Xavier Becerra said the notice exempts private contractors from complying with state law.

"This is suspicious, unprecedented, and most importantly, without any legal basis under federal law," he said in a statement. "It is also a direct assault on the work achieved by California, as we led the country in enacting a licensing program for student loan servicers.

"The California Department of Justice has been fighting tirelessly to protect our students against unscrupulous loan servicers, and we won't stop. We are prepared to defend the protections we secured for college students by making loan servicers accountable for their conduct every step of the way."