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Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Rules and Regulations
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few other miscellaneous items. See 83
FR 1062122. If these specific State laws are directly inconsistent with an equally specific Federal law, they are preempted.
As with Direct Loans, however, the limits of preemption are reached when the discussion moves beyond simply setting specific details of such administrative mechanisms. Nelson, 928 F.3d at 651. At the heart of State laws and regulations in this area are measures designed to protect consumers. There may be many such measures that are not preempted by the general disclosure requirements in Federal law, such as State measures that prohibit affirmative misrepresentations by loan servicers. See, e.g., LawsonRoss, 955 F.3d at 92223. But this interpretation should not be read to suggest that only State laws and regulations relating to affirmative misrepresentation are not preempted.
States may consider and adopt additional measures which protect borrowers and do not conflict with Federal law. These measures can be enforced by the States and the Department can and will work with State officials to root out all forms of fraud, falsehood, and improper conduct that may occur in the Federal student aid programs.
G. Enhanced Borrower Protections Through Federal-State Cooperation The final section of the 2018
interpretation cautions that broad preemption of State student loan servicer laws would not leave borrowers unprotected, and it elaborates ways that the Department continues to oversee loan servicers to ensure that borrowers receive exemplary customer service and are protected from substandard practices. 83 FR 10622. In this interpretation, the Department reaffirms these important objectives and its determination to hold servicers accountable for failing to meet these standards and expectations. Yet the Department also finds that broad preemption of State student loan servicer laws would disserve these objectives for two reasons. First, State officials serve as an essential complement to the Federal government in protecting their citizens from substandard or improper practices.
Second, as explained below, the Department has concluded that close coordination with its State partners will further enhance both servicer accountability and borrower protections.
Accordingly, the Department has considered the matter further and finds that the approach taken in the 2018

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interpretation is seriously flawed. For all the reasons stated in this interpretation, the Department is affirmatively changing its approach to preemption of State student loan servicing laws that was laid out in the 2018 interpretation. To the extent that the final section of the 2018
interpretation purported to provide additional factual material intended to justify its position, those underpinnings are examined more carefully below, and the Department concludes that they do not support the 2018 interpretation either as a historical matter or, as a factual matter, in the likelihood that such an exclusionary approach will succeed in attaining its stated objectives. See, e.g., FCC v. Fox Television Stations, Inc., 556 U.S. 502
2009 agency may change prior policy without being subject to any more searching judicial review where the agency acknowledges the change of position and accounts for any claimed factual underpinnings of the prior policy.
As a historical matter, the Federal government and the States have sought to work closely and cooperatively in certain areas of shared responsibility, such as law enforcement and consumer protection. All parties recognize that the country is vast, its population has grown to immense proportions, and public resources are limited.
Administration of Federal student loans involves managing customer relationships for tens of millions of borrowers in a variety of circumstances and for distinct loan programs with different requirements that have grown up over the past several decades. The complexity and scope of the task is shown by the Departments longstanding practice of engaging large private contractors operating nationwide to service millions of borrowers with cumulative debts that in the aggregate now exceed $1.5 trillion.
Managing these outside contractors to assure that the student loan program operates effectively and in line with its intended objectives is a substantial undertaking, and the oversight challenges are evident and significant.
The Department recognizes that collaboration with the States can supply the means to ensure better oversight of these contractors and provide more protection for student loan borrowers.
Not all States have invested resources in overseeing loan servicers, but to the extent that they have, some State attorneys general and State student loan servicing regulators, with their own capacities and personnel, are able to maintain a closer perspective on how these loan servicers operate in their
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States, including how borrowers are being treated and how their needs are being met. Although the 2018
interpretation strove to justify how the Department could perform this oversight task adequately on its own, a different approach may be more likely to succeed: A coordinated partnership of interested Federal and State officials could produce a more robust system of supervision and enforcement to monitor and improve performance under this far-flung system.
In the 2018 interpretation, the Department explained as a factual matter how it would seek to monitor servicer compliance with contractual requirements related to customer service, including call monitoring, process monitoring, and servicer auditing. See 83 FR 10622. It also described how it uses contracting requirements to incentivize improved customer service and maintain mechanisms for reviewing and responding to complaints about customer service. But the Departments limited resources for compliance monitoring must also encompass various other issues unrelated to customer service, such as compliance with billing practices and other related operational issues. And many of the recently enacted State laws are designed to focus squarely on customer service issues: Servicers engaging in unfair, deceptive, or fraudulent acts or practices; servicers misapplying payments; servicers reporting inaccurate information on borrower performance to credit bureaus; and servicers refusing to communicate with borrowers authorized representatives. See, e.g., Conn. Gen. Stat. 36a850 2016; 110
Ill. Comp. Stat. 992/2020i 2018;
Colo. Rev. Stat. 520109 2019.
Notably, a growing number of States are taking the trouble to enact these laws because of the documented need for more attention to problems adversely affecting their citizens. Rather than viewing this activity by the States as inconvenient or detrimental to its objectives, the Department now recognizes that State regulators can be additive in helping to achieve the same objectives championed in the 2018
interpretation. Rather than expending time and effort contesting the authority of the States in unproductive litigation, the Department intends to work with the States to share the burdens and costs of oversight to ensure that loan servicers are accountable for their performance in better serving borrowers.
Indeed, a collaborative approach where Federal and State officials work together to achieve shared objectives will likely produce a sum that is greater
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