Protection for student loan defaulters rolled back

By Allen Cone  |  March 17, 2017 at 2:42 PM
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March 17 (UPI) -- The Trump administration rolled back guidelines that barred debt collectors from charging high interest rates on past-due student loans.

The Education Department wrote Thursday in a Dear Colleague Letter that a previous letter from President Barack Obama's administration is no longer in force. In 2015, agencies were barred from charging interest of up to 16 percent of the principal and accrued interest on the loans if the borrower entered the government's loan rehabilitation program within 60 days of default.

Almost 7 million people with $162 billion in loans held by guarantee agencies are affected.

"The department will not require compliance with the interpretations set forth in the DCL without providing prior notice and an opportunity for public comment on the issues," the letter signed by Lynn Mahaffie, acting assistant secretary, said.

The Obama administration issued the memo after the Circuit Court of Appeals in 2015 sought guidance in a case against United Student Aid Funds that challenged the penalties.

The current department said it thought the "Dear Colleague Letter" from the Obama administration "would have benefited from public input on the issues discussed" in the letter.

On Monday, two legislators, Sen. Elizabeth Warren, D-Mass., and Rep. Suzanne Bonamici, D-Ore., sent a letter urging the Education Department to uphold the Obama administration's guidelines.

"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 said. "It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added."

Last week, the Consumer Federation of America issued a report that defaults increased 14 percent for the millions of people who had not made a payment on their federal student loans for at least nine months in 2016.

The average amount owed is $30,650 per federal student loan borrower, which is a 17 percent increase since 2013, according to the report.

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