Washington -- Secretary Betsy DeVos's attempt to claim exclusive federal jurisdiction over student loan servicing has hit more roadblocks. States are not about to back away from consumer protection efforts to assist the legion of aggrieved borrowers who have been wronged by the loan servicers.
• The Conference of State Bank Supervisors has written to oppose the move: "This effort at preemption by regulatory fiat runs counter to the Congressionally mandated state-federal balance in financial regulation and exceeds the Department’s authority."
• In the state of Washington, legislation is moving ahead to create a Student Loan Bill of Rights, modeled after those implemented in other states.
• A state court has permitted the Massachusetts Attorney General to proceed with her lawsuit against a student loan servicer, PHEAA, also known as Fed Loan Servicing and AES. The court, we are gratified to note, cited this case twenty-six times: United States ex rel. Oberg v. Pennsylvania Higher Educ. Asst. Agency, 804 F.3d 646, 676-677 (4th Cir. 2015), cert. denied, 137 S.Ct. 617 (2017).
• Twenty-five state attorneys general wrote the Secretary to oppose preemption. The AGs pointed out that the attempted preemption is fundamentally illegal and unconstitutional.
• A legal scholar has called the preemption attempt "not itself a law, it's essentially a glorified press release."
From the standpoint of political science and public policy, this preemption attempt must be viewed as another in the ongoing series of Department of Education's actions consistent with Iron Triangle behavior. See previous posts on Iron Triangles, as found in the right column of these pages, especially Part I, which identified the role of the Education Finance Council. This lobbying organization was instrumental in creating an Iron Triangle in the Department from 2002-2006, and is eager to re-establish another for the benefit of its members.
An EFC letter of June, 2017, suggests the preemption attempt. It not only asks Secretary DeVos to preempt states, but also to preempt "the public" from imposing on federal student loan servicers, an apparent reference to borrower lawsuits and civic organizations that support them.
Note to whom the letter was copied: Department officials Matthew Sessa, Kathleen Smith, and James Manning. Sessa is a former PHEAA employee. Kathleen Smith, a former PHEAA employee and also a former EFC director, took action two months later to terminate the Department's agreement to share information with the Consumer Financial Protection Bureau, which had received tens of thousands of borrower complaints against loan servicing contractors.
James Manning in 2007 relieved PHEAA of having to pay back over $100 million in false claims against taxpayers. Although Manning in the same decision found that these claims were indeed illegal (as determined by the Department's lawyers at OIG and OGC), that finding was treated by PHEAA as inconsequential. A PHEAA official, testifying in November, 2017, said of the Manning 2007 letter, "We got the joke."
Returning now to the department from her several years of work for for-profit colleges (see Part II) is Diane Auer Jones, who was Assistant Secretary for Postsecondary Education at the time of the 2007 Manning letter and would have been in the position to approve what PHEAA called the joke. She will have no trouble fitting once again into the latest Iron Triangle iteration (see Part IV).
So far, Secretary DeVos apparently has been given pause by all the objections, from coast to coast, to her preemption plan, as she has not issued it. But because all the parts of an Iron Triangle are in place, thanks to the revolving door between industry and government, a way to protect the loan servicers from the public and the states will be likely be found, and soon. Iron Triangles are all about the use of power; they are oblivious to matters of federalism, good policy, legality, and in this case, even constitutionality.