Trump Rolls Back Default Protections for Student Loan Borrowers
As of March 17, 2017, The Trump Administration has issued its decision to roll back the protections that prohibit guaranty agencies collecting payments on defaulted student loans to charge fees to the borrower if they enter repayment plans within 60 days of entering default. The Chicago Tribune reports that President Trump sent a letter to guaranty agencies, telling them they no longer must adhere to an Obama-era rule forbidding them from tacking on extra fees. And while debt collectors have announced that they will not charge the exorbitant fees for now, we do not trust debt collectors to act against their own interests and regulate themselves. Borrowers deserve real protection.
The rollback does not affect any borrowers whose loans are held by the Department of Education. However, it may affect the almost 7 million people who have loans held by guarantee agencies—mainly, the people who borrowed money for college through the Federal Family Education Loan (FFEL) program. The FFEL program allowed borrowers to receive federally insured and subsidized loans from private lenders. The program ended in 2010 due to the Obama Administration’s efforts to get private companies out of the business of loan management, though there are still many paying back those loans. Worse still: those paying back the old FFEL loans don’t have access to the same income-based repayment plans as those who took out direct loans from the federal government after 2010.
Executive director of our partner organization Student Debt Crisis, Natalia Abrams, told ATTN: that, “borrowers with FFEL loans comprise just under half of the 8 million people who have defaulted on their student debt, and could be become subject to these extra fees.” She’s further quoted as explaining that, “these people are often those with the least ability to pay, given that they’ve already entered default.”
Senior Fellow at the Consumer Federation of America and former student loan ombudsman with the Consumer Financial Protection Bureau, Rohit Chopra, told The Consumerist that allowing debt collectors to charge 16% fees on defaulted loans, “will do nothing to stop the tidal wave of defaults that is sweeping across the nation,” and “with more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”