Feds tell student loan companies to ignore state authority

The U.S. Education Department issued guidance Friday informing state regulators to back off the companies managing its $1.3 trillion portfolio of student loans, arguing that only the federal government has the authority to oversee its contractors.“State regulation of the servicing of direct loans impedes uniquely federal interests,” the department wrote. “State regulation of the servicing of the Federal Family Education Loan Program is preempted to the extent that it undermines uniform administration of the program.”The notice arrives as states have stepped in to fill what many see as a void in the federal oversight of student loan servicers, the companies the Department of Education pays nearly $1 billion to handle debt payments. The move has created great consternation within the industry, which has lobbied Education Secretary Betsy DeVos and Congress to prevent states from imposing additional rules and regulations. Now the department is taking action, but some legal experts say the declaration is a hollow gesture.