Former President Barack Obama’s Education Department said defaulting borrowers who quickly got their federally guaranteed student loans back on track couldn’t be slammed with a 16 percent collection fee. Last month, President Donald Trump’s Education Department said: Never mind. ADVERTISING
Former President Barack Obama’s Education Department said defaulting borrowers who quickly got their federally guaranteed student loans back on track couldn’t be slammed with a 16 percent collection fee. Last month, President Donald Trump’s Education Department said: Never mind.
It thus offered a windfall to the private companies that get to help operate this government program. But it added to the burden of struggling borrowers.
The Obama administration set out its rule in a “Dear Colleague” letter in 2015. So, unlike a formal regulation, the rule didn’t have to be offered for public comment before it was issued. And that, the Trump administration said in the “Dear Colleague” letter rescinding the rule, was the problem: The rule “would have benefited from public input.”
Important regulations should go through the formal regulatory process. The public should be able to comment. But if the new administration’s only complaint about this fee was procedural, it should have said it was launching the formal process to re-issue the rule.
The public certainly commented when the rule was withdrawn. The comments were informal, but clear and powerful: The withdrawal of the rule generated so much outcry that the companies allowed to charge the fee — known as guarantee agencies — quickly announced they won’t actually charge it.
That outcry was justified. This fee is inhumane: The people subject to it are already struggling with debt. Making the debt larger makes their problem worse.
The law gives defaulting borrowers one shot to rehabilitate their loans — and even arrange payment terms based on their income. The point of that is to let them fix the mistake they made by defaulting. It defeats the purpose to add a huge surcharge.
There’s no good reason to let the agencies charge so much. Collecting from people who quickly enter repayment agreements and keep them is not difficult or expensive. And there’s no free-market argument here: This isn’t a private contract; it’s a government program for which 26 companies are allowed to make money. The question isn’t why regulate — it’s why not have the government take over the whole mess.
The Trump administration invited government contractors to try to squeeze even more money out of people who were already having trouble paying what they owe.
This is unconscionable.
— Pittsburgh Post-Gazette
