Skip to main content
Updated:
Original:

Change by government could allow student loan defaulters to be hit with big fees

Around 7 million Americans with student loans are affected by the decision.
Author:

The Department of Education recently reversed a federal policy that protected struggling graduates who fell behind on their student loan repayments from being hit with fees.

The Obama administration issued the guidance in 2015, which stipulated that companies who administer Federal Family Education Loans (FFEL) can not penalize people who have gone into default – provided they enter the government's loan rehabilitation program within 60 days of defaulting.

But the reversal approved last Friday brings an end to that 60-day protection. That means anyone with a FFEL loan who falls behind on their payments can be hit with fees of up to 16 percent on the cost of their loan and accrued interest, even if they have signed up for a federal repayment plan.

The Trump administration made the change because it thinks the Obama government was too quick to implement the restriction, saying the decision "would have benefited from public input."

As such, the department won't demand compliance from loan guarantors until it has had the opportunity to gather public comment.

The move has been condemned by the Consumer Federation of America, which just last week revealed a 14 percent rise in student loan defaults over the past year, with 1.1 million student loans in default in 2016 at a value of $137.4 billion.

"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, Consumer Federation of America senior fellow. "With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury."

Who will this affect?

The Federal Family Education Loans Program issued federal loans made by private companies that were insured by guaranty agencies, FederalStudentAid notes.

The last of these loans was issued in June 2010, after which the Department of Education assumed control of doling out the federal student loans.

As such, anyone who took out a student loan on or after July 1, 2010, won't be affected by this change, as they won't have FFEL loans.

However, the Washington Post reports that around 7 million Americans have FFEL loans worth $162 billion held by guaranty agencies, so they could be hit with heavy penalties if they fall behind on their payments.

A student loan is considered in default after nine months of missed payments.

The original Obama edict came after a circuit court of appeals asked for a guidance in a case involving a graduate who took United Student Aid Funds to court. She was charged $4,547 for a loan she defaulted on in 2012 but was trying to pay back through a government program.

Next Up

Child mental health counseling

As pandemic continues, so do efforts to improve child mental health access

Children's Minnesota has announced it will open its first inpatient mental health facility for under 18s.

Dalvin Cook

Report: Dalvin Cook suffered torn labrum, dislocated shoulder

Cook is now dealing with a dislocated shoulder and a torn labrum on both sides of his body, according to a report.

Tanner Morgan

Tanner Morgan returning to Gophers for 6th season

One Gophers QB has already entered the transfer portal.

Allina Health Richfield - 407 W 66th St, Richfield, Minnesota - June 2019 - CROP

Charges: Clinic locked down after man tried to enter, threatened passersby

Staff at the clinic suspected he was intoxicated, according to the complaint.

covid, vaccine

Minnesota's COVID-19 update for Monday, November 29

The state's latest report includes data from the Thanksgiving break.

unsplash - woman sick coughing - CROP

Long COVID: Review of Mayo patients may provide new clues

The researchers summarized three "major novel findings" from the data.

Joe Biden

Biden's visit to MN will include stop at Dakota County Technical College

The $1.2 trillion infrastructure bill passed earlier this month.

Brooklyn Center police

Victim of 'accidental' shooting ID'd as 23-year-old Duluth woman

The 23-year-old died three days after being shot while sitting in a parked vehicle.

ambulance

Motorist dead after crashing into utility pole in south Minneapolis

The crash happened Saturday night in the South Uptown neighborhood.

police lights

St. Cloud mother arrested after 3-month-old baby found dead

Officers discovered the baby during a welfare check Sunday.

Merwin Liquors Mounds View

Police shoot, kill man inside Mounds View liquor store

It follows an alleged armed carjacking outside a nearby Aldi.

Dalvin Cook

Report: Dalvin Cook has dislocated shoulder, will undergo MRI

The Vikings running back was carted off the field in Sunday's loss to the 49ers.

Related

Rising number of Americans are struggling to pay off their student loans

1.1 million Americans defaulted on their student loans last year, putting them at the risk of penalties.

How low-income home buyers in MN could be hit by one of Trump's first decisions

Low-income, first-time home buyers could have saved hundreds of dollars a year.

Employers could soon start helping you pay off your student debts

A new program allows companies to help employees with student loans.

5 key points from President Trump's $4.1 trillion budget proposal

Trump's budget features welfare cuts, extra defense spending, and implications for student loans.

Update: Federal government responds to WA, MN lawsuit; arguments coming Tuesday

The federal government's response called the executive order a "lawful exercise."

Key points from Trump's tax plan: What would it mean for your finances?

His plan would have major implications for families and businesses.

Feds tell pair of MN colleges: 'No student loans for you'

Globe University, Minnesota School of Business can't accept federal student loan money in 2017

Minnesota joins states suing federal government over new travel ban order

Minnesota is one of six states opposing the order through the courts.