Education Department reverses rule protecting students from excessive debt collection

The Department of Education (DOE) has invalidated a rule issued in 2015 which prohibited firms involved in debt collection of outstanding student loans from levying fees for debt default.

Thursday’s rule change does not affect any student whose debt is held by the DOE; however, it will impact over 7 million students in debt to agencies whose loans are guaranteed by the Family Federal Education Loan program.

“The department will not require compliance with the interpretations set forth . . . without providing prior notice and an opportunity for public comment on the issues,” read the DOE’s Thursday letter.

As of March 2017, $1.3 trillion in student debt is held by slightly over 44 million Americans.  It is estimated each new college graduate on average is saddled with $37,000 in outstanding loans.

Prior to the Obama White House rule, some guarantee agencies were known to charge up to 16 percent in late fees on negligent debt holders.

The letter issued on Thursday also included a passage scolding the Obama White House for introducing the rule in the absence of input from the public.

“The Department thinks that the position set forth in the [Dear Colleague Letter] would have benefited from public input on the issues discussed in the DCL,” read another passage.

The Obama administration had issued guidance on a gentler student loan collection policy following the request of a federal appeals court regarding a case in which United Student Aid Funds charged a borrower almost $5,000 in “collection costs” after entering into a “rehabilitation agreement” that allowed the former student to lower her monthly payments.

While not an area of concern for most Capitol Hill Republicans, consumer advocates Sen. Elizabeth Warren (D-Mass.) and Rep. Suzanne Bonamici (D-Ore.) sent a letter to the Education Department Monday requesting the Obama-era rule not be struck down.

“Congress gave borrowers in default on their federal student loans the one-time opportunity to rehabilitate their loans out of default and re-enter repayment,” the letter read. “It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added.”

 

[The Hill] [Student Loan Hero] [Washington Post] [Photo courtesy Popular Resistance]