Federal Inaction and State Activity: Student Loan Edition

Abstract

With debts rising faster than new graduates’ starting salaries, a student debt crisis has the potential to haunt the nation much in the way the mortgage crisis did ten years ago. Beginning in 2016, a new mood dampened the federal bureaucracy’s regulatory pace. The DOE, led by Secretary Elisabeth Dee DeVos displayed decreased enthusiasm for regulation and litigation. Once John Michael “Mike” Mulvaney arrived at the CFPB, he brought a similar wariness for administrative and legal activism, one sure to be continued by any likely successor. However, even as the federal government’s involvement has waned in parts, many states have increased their roles. Scores have launched suits and investigations, and many have prepared to clash with not just servicers and lenders but also the DOE. Consequently, servicers and lenders of private student loans (“PSLs”) now confront an amorphous environment policed by diverse cast of state-level characters, able to wield powerful legal tools on behalf of indebted constituents. And as the financial industry learned from the mortgage crisis, when the bubble bursts, significant consumer litigation soon follows.

Keywords: Student Loans, PSLs, Consumer Finance, State, Department of Education, HEA, FDCPA, Servicer, Lender, Attorney-General

JEL Classification: K13, K19, K20, K22, K23, K29, K39, K33, K38, K40, K41