Trump administration withdraws Obama guidance on student loan defaults

20 March 2017

The Trump administration on Thursday reversed guidance provided by the Obama administration that protected borrowers whose student loans were in default from large collection fees if they quickly made arrangements pay the amount within two months. Guarantee agencies issue and collect certain types of student loans that are backed by the government.

''It's incredibly frustrating to see this administration take a stance against borrowers making a good effort to get out of default in a timely manner,'' said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, MarketWatch reported.

The controversy over the fees is not a new one, Bryana Bible filed a class-action suit against guarantee agency United Student Aid Funds or USA Funds, a few years ago. She argued the company illegally charged her over $4,000 in collection fees. Though she had defaulted on her debt in 2012, she claimed to have agreed to make efforts to become current on her loan.

The Obama administration memo forbade the agencies from charging fees for up to 16 per cent of the principal and accrued interest owed on the loans, if the borrower entered the government's loan rehabilitation programme within 60 days of default.

The memo was issued on a circuit court of appeals request for guidance in a case against United Student Aid Funds (USA Funds) challenging the assessment of collection costs. Bible sued the company over $4,547 she was charged in collection costs on a loan she defaulted on in 2012. USA funds charged her the fees even though she had signed a ''rehabilitation agreement'' with USA Funds to for a reduced payment schedule to resolve her debt.   

The two-page letter from the Trump administration reverses 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.

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