Terry H. Schwadron
Sometimes the changes arriving with the Trump administration just leave me scratching my bald head in wonderment. This one involves a new rule to ignore an Obama consumer protection “guidance” or rule aimed at helping those in trouble with student loan debts.
As far as I know, the first Team Trump statement of any kind about student debt. On its face, one would think this is a population needing a hand. Our family continues to pay for outstanding education loans.
Rising student debt was cited through the presidential primaries and elections, more among Democrats than Republicans. Bernie Sanders had called for free public college education as a result, and politics allowed him to pressure Hillary Clinton into a much more supportive position.
A recent article in The Washington Post explained that just days after a report on federal student loans showed a 14 percent increase in defaults, the Education Department eliminated the guidance that barred debt collectors from charging high fees on past-due loans.
The explanation: There had not been sufficient public involvement in instituting the rule.
The impetus had come from a 2012 court case. Bryana Bible sued United Student Aid Funds (USA Funds) challenging $4,537 in collection costs on a loan on which she had defaulted, but had agreed on a reduced payment schedule. Education officials sided with Bible, prompting USA Funds to sue the government last year. The cases were settled earlier this year with a $23-million payment to settle the eventual class-action lawsuit that arose from the Bible case. There was no admission of wrong-doing.
A Circuit Court of Appeals asked the Education Department for a formal “guidance.” The guidance forbid agencies from charging fees for up to 16 percent of the principal and accrued interest if the borrower entered the government’s loan rehabilitation program within 60 days of default.
Last week, the Education Department rescinded the guidance, saying that there should have been public input on the policy.
This kind of singular regulation is too narrow to garner White House statements, but it is a logical follow to an all-out deregulation effort.
The action does not affect any borrowers whose loans are held by the Education Department itself but could affect nearly 7 million people with $162 billion in the Federal Family Education Loan (FFEL) Program loans held by guarantee agencies, about half of all outstanding student loan debt.
There has been a steady increase in the amount of past-due debt in the program, even as the number of borrowers has declined, as interest charges and other fees are being added to balances.
Last week, Sen. Elizabeth Warren (D-Mass) and Rep. Suzanne Bonamici (D-Ore) wrote to ask the Education Department to uphold guidance on collection fees, which they said “results in an unnecessary financial burden on vulnerable borrowers.” During the same week, the Consumer Federation of America reported 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. Tens of thousands 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.
If you look at other pro-business regulation being promoted by the Trumpists, I suppose this makes some kind of internal sense. Banks and other lenders should be freed of regulation, the argument goes, apparently without considering the effects of excessively aggressive borrowing fees.
If you look at the country’s needs for a more forward-looking education approach, this kind of policy change makes little sense at all.
After all, aren’t those with outstanding student loans representative of those who have been “forgotten” by the economy?