{
  "id": "R45917",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "R45917",
  "active": true,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 605059,
      "date": "2019-09-17",
      "retrieved": "2019-09-17T22:18:37.204915",
      "title": "Federal and State Regulation of Student Loan Servicers: A Legal Overview",
      "summary": "As the federal government\u2019s role in the student loan industry has expanded over time, the United States has contracted with student loan servicers to help it administer its growing student loan portfolio. These servicers perform a variety of functions, including (1) communicating with borrowers regarding repayment; (2) disclosing information about student loan terms to borrowers; (3) applying payments to outstanding loan balances; (4) processing applications for enrollment in repayment plans; and (5) processing requests for loan forbearance and deferment. Several federal statutes and regulations\u2014along with an array of contractual provisions\u2014may affect how these servicers conduct these various functions on the government\u2019s behalf with respect to federal student loans.\nSome allege that the existing scheme of federal regulation has not deterred servicers from engaging in various forms of alleged misconduct. According to critics, servicers of federal student loans have engaged in several undesirable behaviors, such as (1) steering borrowers experiencing financial hardship toward forbearance instead of repayment plans that would be more beneficial; (2) neglecting to inform borrowers of the consequences of failing to promptly submit certain required information; (3) misinforming borrowers on their eligibility for loan forgiveness; and (4) misallocating or misapplying loan payments. The servicers deny these allegations.\nFederal laws governing higher education do not authorize borrowers who have allegedly been harmed by servicer misconduct to directly pursue litigation against servicers. Instead, existing law places the primary burden of policing federal student loan servicers upon the federal government. Some commentators disagree, however, over whether the U.S. Department of Education (ED) has exercised sufficient oversight over the servicers with which it contracts. Observers have also disagreed over the extent to which other federal agencies, such as the Consumer Financial Protection Bureau (CFPB), should participate in the regulation of federal student loan servicers.\nAt the same time, more and more states have enacted legislation specifically targeted at student loan servicers. While the specifics of these laws vary from state to state, many purport to impose legal requirements upon servicers of federal student loans that go beyond those imposed by federal law, such as supervision by a state ombudsperson or mandatory licensing. Furthermore, in addition to new laws specifically aimed at servicers, state attorneys general and borrowers alike have invoked existing state consumer protection statutes and common law causes of action against servicers in civil litigation. These burgeoning disputes between servicers on the one hand and states and borrowers on the other have raised legal questions regarding how existing federal law interacts with the growing body of state servicing regulations. ED has taken the position that federal law \u201cpreempts\u201d\u2014that is, displaces\u2014state laws purporting to regulate servicers of federal student loans. While some courts have agreed with ED\u2019s conclusions on preemption, the bulk of courts have reached the opposite conclusion that states retain a role in regulating student loan servicing.\nThis ongoing legal debate has significant legal consequences. On the one hand, if federal law preempts state servicing regulations, servicers will be subject to a single uniform national standard and will not need to expend resources to comply with each jurisdiction\u2019s state-specific regulatory regime. On the other hand, allowing states to enact and enforce their own servicing laws could fill regulatory gaps where\u2014at least in the view of some critics\u2014existing federal regulation has not ensured that servicers perform their duties with sufficient regard for borrowers\u2019 interests. Preserving a regulatory role for the states could also enable each state to experiment with novel regulatory schemes. Given these legal consequences, several Members and committees of the 116th Congress have expressed interest both in the federal regulation of servicers generally and the preemptive scope of that regulation.",
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      "typeId": "REPORTS",
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  "topics": [
    "American Law",
    "Domestic Social Policy"
  ]
}