Defaulting on student loans will now be costlier for many borrowers.
Organizations that collect on defaulted student debt are no longer barred from charging collection fees to borrowers who enter into a repayment agreement within 60 days of default, the Washington Post reports.
Those fees could amount to up to 16 percent of the principal and interest owed on the debt. This change does not affect borrowers with loans held by the U.S. Department of Education (DOE), however.
The change made recently by President Donald Trump’s administration effectively undoes a 2015 Department of Education position that stemmed from borrower lawsuits against United Student Aid Funds, a student loan guarantor also known as USA Funds.
The move was announced in a March 16 memo issued by the DOE, which states that the position of President Barack Obama’s administration “would have benefitted from public input.”
So, the memo continues, Trump’s DOE “will not require compliance with the interpretations set forth in the [2015 position] without providing prior notice and an opportunity for public comment …”
This action came the same week that the Consumer Federation of America (CFA), reported that “millions of Americans are in default on Federal Direct Loans serviced by companies hired by the federal government,” according to the nonprofit’s analysis of new DOE data.
Last year alone, 1.1 million Federal Direct Loan borrowers defaulted, generally meaning their loans were 270 days past due, according to the CFA.
Rohit Chopra, senior fellow at the CFA and former student loan ombudsman at the U.S. Consumer Financial Protection Bureau, commented:
“3,000 preventable student loan defaults each day in America is 3,000 too many. Our broken system works well for the student loan industry, but is failing borrowers, taxpayers, and our economy.”
If you’re struggling with student debt, it’s important to know your options, which you can read all about here at Money Talks News. To start, check out:
- “How to Get Free Help With Your Student Loans“
- “How to Pay Off $10,000 in Debt Without Breaking a Sweat“
- “Don’t Overlook These 4 Student Loan and Tuition Tax Breaks“
If you need professional help, check out the Money Talks News Solutions Center, where you can get help with student loan debt. Money Talks News has partnered with Debt.com to help you find a reputable expert who can create a customized plan for you to get out of debt.
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