Department of Education Rolls Back Rule Stopping Aggressive Student Debt Collectors

The rule prevented collecting large fees from borrowers in default who started paying back again quickly

Department of Education Rolls Back Rule Stopping Aggressive Student Debt Collectors
Image: Pixabay
March 20, 2017

The Department of Education (DOE) has rolled back a rule passed in 2015 that stopped overly-aggressive debt collectors.

The rule prevented the collection of large fees from borrowers who had defaulted but who started paying again quickly.

The DOE stated that it would have been beneficial for the rule, which was passed under the Obama administration, to have been available for public comment before being put into place. The rule applied to Federal Family Education Loans. It prevented guaranty agencies collecting on federally-backed student loans taken out by borrowers who have either begun repaying their debt or figured out a repayment plan.

Agencies want to be able to charge students in default with late fees. However, the Obama administration argued that they shouldn't have this ability if the student has made a commitment to begin paying again.

Student loans default after they have not been paid for nine months. The number of people in default on these loans reached the highest number ever in 2016, when eight million abandoned repaying loans for more than $137 billion. More than one million were in default last year for the very first time.

The DOE said that the rule would not become effective again unless a public comment period was available. Guaranty agencies can go back to collecting the fees again in the meantime.

Because the DOE loans money directly to students now, Federal Family Education Loans are no longer used. For this reason, you are not affected by the rule change if you have taken out a federal student loan at any time since 2010.