Attorney General Phil Weiser filed a "friend of the court" brief Tuesday, backing Pennsylvania in its efforts to sue student loan service giant Navient, alleging unfair and deceptive practices.
Colorado becomes the 32nd jurisdiction to join in the amicus brief in the case against Navient, following the District of Columbia and 30 other states, including a coalition including Republican attorneys general from Alaska, Indiana, Mississippi, Nebraska, South Dakota and Tennessee.
Weiser accused the U.S. Department of Education under Secretary Betsy DeVos of abandoning students and "shielding companies like Navient from accountability."
The state General Assembly took up the issue over the past several years, but those efforts failed when the Senate was controlled by Republicans.
In this year's session, majority Democrats passed Senate Bill 2, which requires certain student loan services to obtain a license to provide student loans. Federal student loan entities, such as Navient, would be automatically granted a license without the application. The bill also established an ombudsman within the Department of Law to handle student loan complaints.
According to the law's fiscal analysis, student loan services also are prohibited from "defrauding or misleading borrowers, omitting material information, misapplying student loan payments, providing inaccurate information to a credit bureau, and failing to evaluate a borrower for an income-based repayment program where available."
The ombudsman has been hired, and the office has set up an online form to handle student borrower complaints. The law took effect Aug. 2, and one complaint has been received since, a spokeswoman said.
According to a recent report by Politico, Navient CEO Jack Remondi contacted DeVos personally to ask her to declare that states had no legal authority to police companies (such as Navient) regarding federal student loans. DeVos took that action last year.
The Pennsylvania lawsuit is one of six against the loan giant. The company also is being sued by the federal Consumer Financial Protection Bureau and the states of Mississippi, California, Illinois and Washington. The CFPB alleges that Navient failed to properly credit payments and didn't tell borrowers about repayment options. The agency also accused the Department of Education of hampering its efforts to obtain documents for the lawsuit.
“Many student loan servicers have engaged in a broad range of unfair, deceptive, and abusive practices such as overcharging borrowers and steering them into expensive repayment plans,” Weiser said in a statement Tuesday. “The U.S. Department of Education has abandoned students and is shielding companies like Navient from accountability; we in Colorado are going to hold them accountable. I am committed to defending Colorado’s laws that protect students who have crippling debt.
"The level of student debt and improper student loan servicing is cause for alarm, as it makes it difficult for people to start families, buy homes, or open businesses.”
The 32 state attorneys general have argued that states have a "substantial interest in protecting their residents from all unfair and deceptive business practices committed by businesses operating within their borders, including federal student loan servicers."
More than half of Colorado students graduate with student loan debt, averaging $26,530 per student. According to Weiser's office, 734,000 Coloradans have student loans, with an outstanding total debt of $26.5 billion.
Friday, the Department of Education issued new regulations on such debt. According to Inside Higher Ed, the new rules will scale back loan forgiveness programs when students claim they have been defrauded by student loan servicers.
That could cost student borrowers billions more in debt payments. Before these regulations, borrowers could make claims based on individual state laws, but that also ends with the new regulations, which take effect next year.