California AG protests federal bill prohibiting state regulation of student loans

By Sandra Lane | Apr 5, 2018

SACRAMENTO – In an effort to prevent the passage of a bill that would shield student-loan collection companies from regulation by individual states, California Attorney General Xavier Becerra joined with 29 other attorneys general March 15 in sending a letter to selected members of Congress.

The bipartisan coalition of attorneys general in the letter expressed their opposition to the proposed bill known as the PROSPER Act. The bill was advanced Dec. 13 by the House Committee on Education and the Workforce and will move to a full U.S. House of Representatives vote.

“There is a student loan debt crisis in our country exacerbated by loan servicers who play fast and loose with the rules. Now is not the time to take the cops off the beat," said Becerra in a March 19 press release. "The so-called PROSPER Act would be a boon for unscrupulous operators and a direct assault on the work achieved by California. We led the country in enacting a licensing program for student loan servicers. The only people who will prosper from this legislation are the profiteers who care little about helping students graduate from college." 

The bill was promulgated by Education Secretary Betsy DeVos, who said that the federal government should be the only authority to oversee federal student-loan servicers. She said she feels that such regulation should not be under the jurisdiction of state lawmakers and regulators because state rules may be much tougher than federal law.

California Attorney General Xavier Becerra   Attorney's General Office

As stated in, last year attorneys general led by New York Attorney General Eric Schneiderman criticized lobbying efforts by the student loan servicing industry. Lobbyists maintain that protection from state regulation efforts is needed because a patchwork of state rules governing student-loan servicing will make it more difficult and costly for the servicers to operate nationwide. The Department of Education pays "nearly $1 billion to a handful of student loan companies that collect the debt on behalf of the federal government" each year, Politico reports.

A press release from the California Attorney General’s Office detailed reasons Becerra and others are opposed to the bill. They argue that passage of the bill would interfere with the rights of states long held sacred. Each state has passed laws to protect its citizens from deceptive lending practices, the letter states.

Considering the extent of the student-loan crisis, the attorneys general feel that state oversight is required. As stated in Becerra's press release, “As of the second quarter of 2017, U.S. borrowers owed an estimated $1.34 trillion in federal and private student loans – more than for auto loans, credit cards or any other non-mortgage loan category.” 

Most of those who signed the letter were Democrats, but a few Republican attorneys general also signed the letter including Herbert Slatery III of Tennessee and Cynthia Coffman of Colorado.

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