https://www.washingtonpost.com/news...ault-on-student-loans/?utm_term=.a53eafda7ff3
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 action does not affect any borrowers whose loans are held by the Education Department, according to the department. It could, however, impact nearly 7 million people with $162 billion in FFEL loans held by guarantee agencies.
Nearly half of the total outstanding student debt in default comes from the FFEL program. There has been a fairly steady increase in the total amount of past-due debt in the program, even as the number of borrowers has declined, suggesting that interest charges and other fees are being tacked on to balances.
“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.”
The withdrawal of the Obama administration memo arrives the same week as a report from the Consumer Federation of America (CFA) showing that millions of people had not made a payment on $137 billion in federal student loans for at least nine months in 2016, a 14 percent increase in defaults from a year earlier. Though the number of borrowers defaulting for the first time in the direct loan program slowed last year, tens of thousands of people are defaulting for at least a second time.
“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,” said Rohit Chopra, a senior fellow at CFA and a former student loan ombudsman at the Consumer Financial Protection Bureau. “With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”
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 action does not affect any borrowers whose loans are held by the Education Department, according to the department. It could, however, impact nearly 7 million people with $162 billion in FFEL loans held by guarantee agencies.
Nearly half of the total outstanding student debt in default comes from the FFEL program. There has been a fairly steady increase in the total amount of past-due debt in the program, even as the number of borrowers has declined, suggesting that interest charges and other fees are being tacked on to balances.
“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.”
The withdrawal of the Obama administration memo arrives the same week as a report from the Consumer Federation of America (CFA) showing that millions of people had not made a payment on $137 billion in federal student loans for at least nine months in 2016, a 14 percent increase in defaults from a year earlier. Though the number of borrowers defaulting for the first time in the direct loan program slowed last year, tens of thousands of people are defaulting for at least a second time.
“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,” said Rohit Chopra, a senior fellow at CFA and a former student loan ombudsman at the Consumer Financial Protection Bureau. “With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”