NSLDN Appears in 7th Circuit to Defend States’ Ability to Protect Borrowers
October 23, 2018 - Today, NSLDN’s Vice President and Chief Counsel Dan Zibel appeared before the U.S. Court of Appeals for the 7th Circuit to argue a case that may determine if states and student loan borrowers have the power to use state law to protect borrowers from abusive loan servicing practices. At issue in the case, Nelson v. Great Lakes Education Loan Services, Inc., is whether the federal Higher Education Act preempts state consumer protection laws. The case is likely to have a major impact on the future of student borrower protections and the extent to which the Trump administration can insulate servicers from effective oversight.
Background
In the case at issue, a student loan borrower is suing the servicer of her federal student loans, Great Lakes Education Loan Services. The borrower claims that Great Lakes advertised itself as an expert advisor offering to provide individualized advice in each borrower’s best interest, but instead systematically steered borrowers into repayment plans that were in the financial interest of Great Lakes and to the detriment of the borrowers. Great Lakes has asserted that student loan borrowers do not have the right to use state consumer protection law to remedy these misrepresentations.
The position asserted by Great Lakes has support from Secretary of Education Betsy DeVos, who has attempted to insulate the loan servicers from state oversight and enforcement. In March of this year, the Department issued a Notice of Interpretation arguing that state regulation of federal student loan servicers is preempted by federal law. In asserting its position regarding the preemption of state consumer protection laws, the Department of Education has relied heavily on the decision on appeal in this case.
Many states have enacted consumer laws that give student borrowers additional protection from the servicers of federal student loans. Laws and supervision at the state level can hold servicers accountable when they give borrowers the runaround by providing inaccurate or misleading information, or otherwise treating borrowers unfairly. Private companies, such as Navient and Nelnet (now the parent of Great Lakes), service and collect more than $1.4 trillion in outstanding loans from over 42 million borrowers across the nation.
The Department of Education’s position – and the position advocated for by Great Lakes in this case – has been opposed by a bipartisan coalition of 25 state attorneys general, the National Governors Association (a bipartisan organization representing the collective voice of all 50 state governors), and consumer advocates such as NSLDN.