On March 16, President Trump killed federal guidance that prevented student loan collectors from charging higher fees for those who defaulted on their student loans. The guidance was initially imposed by the Obama administration to relieve the burden on young Americans who demonstrated fiscal irresponsibility with their loan payments through the Family Family Education Loan (FFEL) program.
President Obama’s memo told various collector agencies not to charge fees that reached as high as 16 percent of the interest accrued on loans assuming that a borrower defaulted within 60 days of entering a loan rehabilitation program.
Trump’s motivation in revoking the memo came from a report by the Consumer Federation of America (CFA) that indicated that millions of Americans had failed to pay $137 billion dollars in student loan debt last year. This represented a 14 percent increase in defaults from 2015. While many Americans use their federal loans to pay for their education, a study found that approximately 30% of students use their taxpayer-provided loans to party during spring break.
The Trump administration’s decision to kill the Obama program elicited scorn from U.S. Senator Elizabeth Warren (D-MA) and Oregon Congresswoman Suzanne Bonamici (D-OR), who wrote a letter to the Department of Education, stating, “Congress gave borrowers in default on their federal student loans the one-time opportunity to rehabilitate their loans out of default and re-enter repayment. It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added.”
Rohit Chopra, a senior fellow at CFA, also argued that Trump’s move will do nothing to stop the “tidal wave of defaults that is sweeping across the nation.”