In a November 21, 2018 decision, the District Court for the District of Columbia found that District of Columbia (DC) licensing requirements are preempted by federal law for two types of federal student loans, but not for one. third. The case in question is Student Loan Servicing Alliance v. District of Columbiano. 18-cv-640 (DDC 21 Nov. 2018). The Applicant (SLSA) is a national membership organization of student loan servicers.
The decision is 70 pages long and details the analysis of applicable constitutional law, including all of the arguments the court discarded. This article will only deal with the provisions that the court has found persuasive.
The federal government initially created two types of federal student loan programs: the Federal Direct Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP). The federal government acts as a lender for the FDLP and therefore owed these loans. FFELP loans, on the other hand, are issued by private lenders and the federal government has acted as a reinsurer.
In 2008, Congress passed the Guaranteed Continued Access to Student Loans Act, which allowed the US Department of Education (ED) to purchase FFELP loans for a limited time. ED purchased 3.91 million loans worth $94 million. The government now acts as the lender/owner of these loans. This split the two federal student loans into three: FDLP loans, ED-owned FFELP loans, and private FFELP loans.
In 2010, Congress ended the FFELP program through the Health Care and Education Reconciliation Act. Currently, more than 90% of new student loans are granted through the FDLP.
Congress granted regulatory authority for federal student loans to ED and specifically granted the Secretary of Education the authority to evaluate, contract, and regulate its third-party providers.
The District of Columbia enacted the Student Loans Ombudsman Establishment and Serving Regulation Amendment Act (DC Act) in 2016 “in response to growing evidence of student loan servicer misconduct. “. This led DC to create a licensing requirement for student loan servicers.
The SLSA filed this lawsuit challenging the constitutionality of the DC law, specifically the licensing requirement for student loan servicers, arguing that such a requirement is preempted by federal law.
The Court’s decision
Preemption can be found under several different criteria and standards, many of which were raised and rejected by the court in its decision. However, the court agreed with the SLSA in one of the arguments and therefore concluded that DC’s licensing requirement was unconstitutional for government-owned FDLP and FFELP loans, but not for private FFELP loans. .
The SLSA satisfied the court that conflict preemption exists in this case. Conflicts preemption overrides a state law when, among other things, a conflict exists between the state law in question and a congressional goal or purpose.
The court found that DC’s licensing requirement “unacceptably challenges” the federal government’s authority to select its third-party repairers. The intent of Congress was to give the Secretary of Education sole authority to determine qualifications and contracts with its third-party providers. The DC license requirement creates its own set of requirements. If a repairer does not meet these requirements, they will not be licensed by DC. According to the court, this creates a “second check” and adds additional requirements for third-party providers selected by the Secretary of Education, which conflicts with the exclusive authority of the Secretary. For this reason, the court found that there is a preemption of conflict between DC law for the two types of government-owned loans: FDLP loans and government-owned FFELP loans.
However, the court declined to extend the conflict preemption finding to FFELP’s private loans. The Secretary of Education does not select third-party providers for private FFELP loans; the private lender does. Although the court agreed with the SLSA that Congress intended to standardize the servicing and administration of FFELP loans, the court found that the DC license requirement supplements the qualifying requirements. base for third-party providers – but does not obstruct or impede objective Congress.
This decision could have a significant impact on the service of student loans. While the ruling only analyzed the DC license requirement, the court noted in its opening paragraph that this ruling could also be inferred from other states. In other words, if the Secretary of Education has sole authority to vet and select third-party providers for government-owned FDLP and FFELP loans, then any state’s licensing requirements challenge and impede this authority.
The ARM industry is subject to numerous federal and state laws and regulations. This ruling raises an interesting question: Could any of the myriad state requirements for debt collectors be anticipated in the same way?