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- Sens. Elizabeth Warren and Sherrod Brown urged for more state oversight over student-loan companies.
- Biden recently reversed a Trump-era policy that prevented states from regulating those companies.
- The Democrats are pushing for even further action to protect borrowers from abusive practices.
- See more stories on Insider's business page.
Last month, the Education Department reversed a Trump-era policy that prevented states from regulating student-loan companies. Massachusetts Sen. Elizabeth Warren lauded the reversal, but she wants states to be able to do even more to protect borrowers from student-loan abuses.
"The world has changed for student-loan-debt servicers," Warren told Insider. "They can't sign a contract, do a lousy job, cost borrowers tons of money, and still get their contracts renewed."
Last week, Warren and Ohio Sen. Sherrod Brown led six of their Democratic colleagues in urging Cardona in a letter to go beyond the reversal of President Donald Trump's policy and provide additional protections to borrowers, such as requiring loan companies to be licensed or have in place complaint processing protocols.
In 2017, more than half of all 50 states either proposed or enacted legislation to regulate student-loan servicers. But Trump's Education Department changed that with a memo that said the Privacy Act of 1974 prevented student-loan servicers from supplying state regulators with any documentation unless the department approved. A 2018 notice from Trump's department followed, insulating student-loan servicers from any type of state regulation.
As Insider previously reported, Cardona's new policy for state regulation allows states to help enforce borrowers' bill of rights and similar laws to address issues with servicing loans – a change from Trump, who ensured the federal government was the only student-loan watchdog in the country.
"When servicers or other contractors take positions that obstruct Federal or state oversight, they should face consequences under their current contracts and in future allocations and renewals," the letter said. "We strongly urge you to incorporate accountability for abusive and illegal consumer practices and for failure to cooperate with Federal and state regulators into the ongoing management of the student loan program."
The letter noted the benefits that have already resulted from increased state oversight of student-loan companies. For example, Massachusetts Attorney General Maura Healey recently reached a settlement with one company that services student loans -the Pennsylvania Higher Education Assistance Agency (PHEAA) - requiring a correction of any borrower that may have been harmed by the company's "errors and misconduct," affecting more than 200,000 borrowers.
Allowing increased state oversight will likely improve experiences for borrowers who have been struggling for years to pay off their debt and get information on student-loan forgiveness. Insider spoke to borrowers who have been spiraling into student debt because their servicers simply won't pick up the phone, and when they do answer, borrowers are frequently told the wrong thing, which can force borrowers to keep paying debt they might not owe.
"It was the same thing again and again," one borrower said. "It was extremely frustrating."
But Warren believes that companies will no longer be able to take advantage of borrowers, especially after two companies that service student loans shut down in July.
"The whole student-loan area is in turmoil right now," Warren told Insider. "We need to come out of this on the other side with less student-loan debt, and the remaining debt must be better administered."