The burden of student loan debt just got a lot heavier for some borrowers in or near default. The Department of Education under President Donald Trump has rescinded guidance from the Obama administration that barred debt collection agencies from charging high fees to borrowers who had defaulted on Federal Family Education Loan Program (FFELP) loans. They can now charge an additional 16% on the outstanding principal and interest of loans in default.
FFEL loans are college loans from private institutions guaranteed by the federal government, made before June 30, 2010. After that date, the federal government took over the student loan market from banks, but that, too, could change under the Trump administration.
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"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, senior fellow at the Consumer Federation of America and former student loan ombudsman at the Consumer Financial Protection Bureau, in a statement. "With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury."
(Related on ThinkAdvisor: Who's to Blame for the Rise in Student Loan Debt and Defaults?)
The DOE notice does not address how a borrower in default will be able to afford the additional fees on their loan. Chopra at the Consumer Federation expects many of those borrowers will be subject to wage garnishment, Social Security benefit seizure and tax refund offsets.
