Despite receiving approval from the Trump administration, Great Lakes Higher Education Corp. said Tuesday it will not charge people with past-due student loans high collection fees if they agree to make good on the debt.
Great Lakes owns the federally guaranteed student loan portfolio of United Student Aid Funds (USA Funds), which has been locked in a two-year legal battle with the Education Department over collection fees tied to the old bank-based Federal Family Education Loan (FFEL) program. The Obama administration forbade student debt collectors from charging fees equal to 16 percent of the total balance if a borrower entered the government’s loan rehabilitation program within 60 days of default, prompting the lawsuit.
Last week, the Education Department ordered guarantee agencies that collect on defaulted student debt to disregard the guidance from the former administration. The two-page “Dear colleague” letter issued Thursday walks back the department’s previous stance on the grounds that there should have been public input on the issue.
Although the action does not affect any borrowers whose loans are held by the Education Department, it could affect nearly 7 million people with $162 billion in FFEL loans held by guarantee agencies. Almost half of the total outstanding student debt in default comes from the FFEL program, where there has been an increase in the total amount of past-due debt even as the number of borrowers in the program declines. That suggests that interest charges and other fees are being tacked on to balances.
The timing of the department’s “Dear colleague” letter has raised suspicions. In a letter sent to Education Secretary Betsy DeVos, Sen. Elizabeth Warren (D-Mass.) questioned whether Taylor Hansen, a former for-profit college lobbyist hired at the department, had any role in the decision because it stood to benefit USA Funds, which is run by his father, Bill Hansen. Education officials said Taylor Hansen, who resigned Friday, served without any conflicts.
In light of the Education Department’s recent action, USA Funds is seeking to dismiss its lawsuit against the agency. The company transferred the management of nearly $50 billion in federally guaranteed student loans to Great Lakes last year.
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