Trump Administration Rolls Back Federal Protections for Those with Student Loans in Default

It has only been a few days since a report was released to show that federal student loans have seen a double-digit increase in defaults, but President Donald Trump’s administration has already revoked federal guidance which had earlier barred student debt collectors from charging high fees on those loans which are past due.

As such, the new Education Department is now ordering guarantee agencies which collect on these defaulted debts to disregard a memo issued by former President Barack Obama. Known as the Federal Family Education Loan Program, this federal lending program had forbid agencies from charging exorbitant fees up to 16 percent of the principle and accrued interest owed on said loans.

The Obama administration had originally issued the memo as a response to a circuit court of appeals request for guidance in a particular case against United Student Aid Funds to challenge the assessment of collection costs.

All that in mind, the Trump administration sent out a two-page “Dear colleague” letter which, essentially, walks back the department’s previous stance. The letter states:

“The department will not require compliance with the interpretations set forth” in the previous memo “without providing prior notice and an opportunity for public comment on the issues.”

Now, this new action does not affect any borrowers whose loans are actually held by the Department of Education. Still, the change could very well impact 7 million people who hold roughly $162 billion in FFEL loans held by those guarantee agencies.  More importantly, roughly half of the total outstanding student debt that is currently in default came out of the FFEL program.  Of course, this past-due debt continues to increase, steadily, even though there are fewer and fewer borrowers every year.

All in all, senior fellow at CFA Rohit Chopra, who is also a former student loan ombudsman with the Consumer Financial Protection Bureau, notes, “The administration’s first move on the student loan default crisis will do nothing to stop the tidal wave of defaults that is sweeping across the nation. With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”