How the student loan industry lobbied DeVos to fight state regulations

The Trump administration’s attempts to shield some student loan companies from new state regulations began after the industry waged a furious lobbying campaign, which included the head of student loan giant Navient, emails obtained by POLITICO show.

Jack Remondi, chief executive officer of Navient, personally emailed a top aide to Education Secretary Betsy DeVos, urging the administration to “quickly” declare that states lacked the authority to police the companies that, like his, collect federal student loans.

Remondi and other industry heavyweights were trying to enlist the Education Department’s help to fend off the growing trend of states considering or passing laws to crack down on student loan servicing companies. The states were responding to allegations of misrepresentations and other abuses in the industry, which manages the student loan payments of the nation’s more than 45 million student loan debtors.

Remondi, who called the timing “critical,” told the top DeVos adviser that he was especially concerned about the licensing fees that companies would potentially have to pay to state regulators.

“Today’s federal student loan program is already overly complex, adding state based rules would not be helpful to borrowers or the cost of the program,” Remondi wrote in the September 2017 email to Jim Manning, who was acting undersecretary of the department.

Several months later, the Trump administration agreed to Remondi’s request — which had been echoed in other emails sent to the Education Department by industry groups like the Student Loan Servicing Alliance and the National Council for Higher Education Resources.

DeVos in March 2018 issued a notice declaring that federal law preempts state regulation of companies collecting federal student loans. The move drew criticism from state attorneys general, state banking regulators and the National Governors Association. Consumer advocates argued that states have the right to oversee companies operating within their borders that collect loan payments from their residents.

Student loan servicing companies have long opposed the new wave of state regulations. But the emails outline in new detail the depth of the companies’ lobbying campaigns, and the frequent contract between industry insiders and Education Department officials about the issue.

The trove of more than 2,000 pages of emails outlining the industry lobbying efforts was obtained by POLITICO from the National Student Legal Defense Network, which sued the Education Department to get them under the Freedom of Information Act.

“These emails are proof the Trump Education Department takes its marching orders from the very same servicers that have been failing students,” said Sam Gilford, the group’s director of external affairs. “At Navient’s urging, Secretary DeVos attempted to give them a virtual get-out-of-jail-free card, hoping to insulate the company from lawsuits brought by state AGs and individual students.”

Navient spokesperson Paul Hartwick said that Remondi’s email “requested that the Department of Education reaffirm the federal preemption position originally issued by the Department of Justice and the Department of Education during the Obama administration.”

The Trump administration has said that states can’t regulate the companies that collect federal student loans for the sake of nationwide consistency.

“Despite lobbying efforts on both sides of this issue, we’ve been clear from the beginning that federal student loans are a federal asset and they must be federally regulated,” Education Department spokesperson Liz Hill said on Wednesday. “A piecemeal, state-by-state approach to regulating federal assets causes confusion for borrowers and makes administration of the loan program more complicated and costly.”

Hill added that “Congress gave the Education Department the authority to administer and oversee” federal student loans.

The emails obtained under FOIA also show that the student loan industry debated whether to ask the Trump administration to add student loan preemption to its wide-ranging regulatory agenda.

Winkie Crigler, who led the Student Loan Servicing Alliance, a trade group, sent an email to an Education Department official forwarding a proposal by Navient to add preemption to the regulatory agenda.

But Crigler also noted that she was skeptical about that approach. “I would want to talk to others but I don’t think that we want to debate preemption in neg reg,” she said, referring to the required process by which the Education Department publicly negotiates new regulations with various interest groups.

The guidance that DeVos ultimately issued declaring federal student loans off limits to state regulators isn’t a regulation and it doesn’t have the force of law. The document has been viewed with different levels of significance by the various federal judges who have reviewed it.

The emails also show that Education Department officials were closely monitoring the status of state loan servicing laws before coming out against them.

Crigler was in frequent contact with Kathleen Smith, another DeVos aide, about the progress of the laws in various states, trading intelligence about whether state lawmakers and governors would adopt them, according to the emails.

“These emails convey the concerns SLSA and its members have long had about potential conflicts impacting an inherently federal program and needing to get clarity — so nothing new or different,” Crigler said in an email to POLITICO on Wednesday. “It is the same as we have said in public in many forums.”

The association earlier this year was successful in getting a federal judge to strike down the District of Columbia’s student loan servicing law on the grounds that it interfered with federal law. The D.C. attorney general has dropped his appeal of the case.

But federal courts, including an appeals court, have ruled against the industry on the preemption issue in some other cases.

The state-by-state efforts to crack down on student loan servicers were buoyed in some cases by Democratic gains in statehouses last November. They’ve been spearheaded by a coalition of liberal groups, consumer advocacy organizations and labor unions.

A handful of states earlier this year defied the Trump administration in passing new laws: Colorado, Maryland, New York and New Jersey this year all adopted new regulation of the industry. California, Connecticut and Illinois previously passed such laws.

The emails also show correspondence between Education Department officials and attorneys for another loan servicer, the Pennsylvania Higher Education Assistance Authority, or PHEAA, as the Trump administration sought to stop Massachusetts from suing the company.

The administration in January 2018 filed a statement of interest in state court in Massachusetts that said the state attorney general, Maura Healey, lacked the authority to sue PHEAA because it collects student loans on behalf of the federal government.

PHEAA’s outside counsel, an attorney at the firm Ballard Spahr, was in contact with Education Department attorneys before and after the Trump administration made the filing. And in at least one case, the PHEAA lawyer and the administration appeared to strategize together, according to the emails, some of which are redacted.

“Just circling back, in light of yesterday’s argument and Healey’s statements thereafter,” PHEAA’s Ballard Spahr attorney wrote to a political appointee in the Education Department’s Office of General Counsel. “I have an idea or two to share, if you’re interested.”

The email was sent the day after Healey publicly blasted the Education Department for having “no business in this case.” The judge in the case ultimately sided with Healey on the matter, rejecting the Trump administration’s arguments, though the overall case is ongoing.

While the emails overall show close communication between the Education Department and the industry, the Trump administration wasn’t receptive to input from the companies in at least one case.

Bob Eitel, a senior adviser to DeVos, rejected a request in October 2017 for a meeting with an outside lobbyist for Navient to discuss possible changes to how student loans are treated in bankruptcy.

“Unfortunately, my schedule will not permit a meeting at this time,” Eitel responded.

Article originally published on POLITICO Magazine