Trump administration rescinds Obama guidance on student loan defaults: report

The Trump administration on Thursday rolled back Obama-era guidance that forbade student loan debt collectors from charging high fees to defaulted borrowers, The Washington Post reported.

In a “Dear Colleague” letter, the administration tells agencies that collect on defaulted loan debt to disregard guidance prohibiting them from charging borrowers who default on their payments fees of as much as 16 percent of the loan’s principal and accrued interest.

It also says that the initial guidance handed down by the Obama administration in 2015 should have been subjected to public comment before it was issued.


“The Department thinks that the position set forth in the [Obama administration guidance] would have benefitted from public input on the issues discussed in the [guidance letter],” the Trump administration’s directive reads.
“The department will not require compliance with the interpretations set forth ... without providing prior notice and an opportunity for public comment on the issues,” it continues.

The decision to rescind the guidance came two days after the Consumer Federation of America issued a report that finds that the number of people defaulting on their student loan payments is on the rise.

The Trump’s administration’s letter affects 7 million people with loans through the Federal Family Education Loan Program that are held by guaranty agencies. Individuals whose debt is held by the Department of Education are not impacted by the decision.

The amount owed in student loan debt has surpassed that of credit card debt — about $1.2 trillion.