Days after a report on federal student loans revealed a double-digit rise in defaults, President Trump’s administration revoked federal guidance Thursday that barred student debt collectors from charging high fees on past-due loans.
The Education Department is ordering guarantee agencies that collect on defaulted debt to disregard a memo former President Barack Obama’s administration issued on the old bank-based federal lending program, known as the Federal Family Education Loan (FFEL) Program. That memo forbid the agencies from charging fees for up to 16 percent of the principal and accrued interest owed on the loans, if the borrower entered the government’s loan rehabilitation program within 60 days of default.
The Obama administration issued the memo after a circuit court of appeals asked for guidance in a case against United Student Aid Funds (USA Funds) challenging the assessment of collection costs. Bryana Bible took the company to court after being charged $4,547 in collection costs on a loan she defaulted on in 2012. Though she had signed a “rehabilitation agreement” with USA Funds to set a reduced payment schedule to resolve her debt, the company assessed the fees.
The two-page “Dear colleague” letter from the Trump administration walks back the department’s previous stance on the grounds that there should have been public input on the issue.
“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,” the letter said.
There are many things I could say about this, but I'll just note that student loan debt is a huge part of consumer debt, yet these debtors enjoy none of the protections of bankruptcy that other debtors enjoy. While bankruptcy law was conceived to benefit creditors by providing an orderly collection process among competing creditors, bankruptcy law also provides de facto protection of debtors who have no hope of financial recovery. The wealthiest Americans especially enjoy these protections vis-à-vis the corporate shield and corporate bankruptcy laws, allowing them to walk away from billions in debt every year. Trump himself has walked away from billions in debt*. I wonder how many Trump supporters have a heartless attitude toward student debtors, while dismissing Trump's many bankruptcies as a non-issue?
*A close friend--an attorney turned investment banker--worked for Trump in a major bankruptcy case.