The Massachusetts Senate unanimously passed a bill on Wednesday regulating student loan servicers, which, if it becomes law, will likely set up a clash between Massachusetts and the federal government.
“If the Trump administration tries to stop us, so be it. Let them try to stop us,” said Sen. Eric Lesser, D-Longmeadow, who sponsored the bill. “I’m confident the courts will side with us.”
The bill, S.2380, would set up a licensing scheme for student loan servicers. Currently, the organizations that collect and administer student loans for the federal government are not regulated by the states.
The bill would create an ombudsman to handle student loan complaints, paid for by a licensing fee levied on student loan servicers. It would let state officials investigate and take action against student loan servicers who violate the terms of their license or consumer protection laws.
“As public officials, it is our duty to ensure fair and appropriate lending – especially in the student loan industry,” said Senate President Harriette Chandler, D-Worcester, in a statement. “This legislation ensures that Massachusetts residents receive robust consumer protections and that the student loan industry is given the proper level of oversight.”
Advocates for the bill say it is necessary because student loan servicers have done things like making menacing phone calls to borrowers late at night and processing payments in ways that ensures students owe more money. They say servicers avoid telling borrowers about repayment plans that might help them.
“It’s been the wild west with loan servicers over last several years, and the state had very limited ability and limited teeth to be able to step in and protect borrowers,” Lesser said.
Attorney General Maura Healey, who has sued and reached settlements with student loan servicers, supports the bill.
Representatives of the student loan industry have said they believe that only the federal government, not the states, should be allowed to regulate the industry.
Education Secretary Betsy DeVos in March sided with the industry and wrote an interpretation of federal law declaring that states cannot regulate student loan servicers.
Several states, led by Connecticut in 2015, already have laws regulating student loan servicers. A related lawsuit in Connecticut is pending, and other legal challenges could result from the clash between federal and state interpretations of state authority.
Lesser’s bill is still far from becoming law. It must still pass the House, which is expected to take time to review and tweak the legislation.
Rep. Natalie Higgins, D-Leominster, who sponsored the bill in the House, said she is hopeful that lawmakers will pass it. “Massachusetts borrowers can’t wait for this,” Higgins said.
If it does become law, Higgins acknowledged that it will “probably” end up in court. But she believes Massachusetts is right to try to regulate the industry.
“We have the right in Massachusetts to protect our consumers,” Higgins said. “Student loan borrowers need to be protected.”
PHENOM, the Public Higher Education Network of Massachusetts, an advocacy group for higher education that Higgins used to lead, has voiced support for the bill. So have several teachers’ unions, consumer groups and student groups.
“If we, as a Commonwealth, are asking our students and families to go into debt in order to get an education, we must be willing to protect them from predatory practices,” PHENOM and other organizations wrote in a letter to senators. “With higher education facing serious threats from President Trump and Education Secretary Betsy DeVos, it is up to Massachusetts to stand up for basic consumer protections for student borrowers.”