You may have recently heard about the Trump administration’s reversal of some Obama-era consumer protections on student loans. Worried about what this might mean for you? Let us give you some background, explain the details, and let you know the steps you can take if you think this new policy could affect you.
These days if you submit the FAFSA and receive federal loans, your loans are funded directly by the federal government through the Direct Loan Program. But up until 2010 there was also a program called the Family Federal Education Loan Program (FFELP). FFELP used banks and other organizations as a third-party lender of federal loans. This program no longer exists. But there are still many borrowers repaying FFELP Loans. And the new policy from the Trump administration affects these borrowers. If you don’t have FFELP Loans (and you definitely don’t if you borrowed your first loans after June 30, 2010), this new policy does not affect you. If you’re not sure whether or not your federal loans are FFELP Loans, contact your loan servicer.
The Old Policy
If a borrower falls delinquent (misses too many payments) on his or her FFELP Loan, that loan can default. If that happens, a borrower’s credit can suffer and the lender’s debt collector can garnish his wages. That debt collector, called a guarantee agency, can also add a fee to the loan to reimburse the lender for the collection activities that they undertake to recover the loan. An Obama-era policy stipulated that if a borrower were to enter into a rehabilitation process within 60 days of receiving notification of default, the borrower would not longer encounter this fee. Rehabilitation is a program of repayment designed to help students get their repayment back in good standing. Waiving the fee helped them do just that.
The New Policy
The new directive introduced by the Trump Administration reverses the Obama-era policy. This means that borrowers are no longer eligible to benefit from a waived fee. Defaulted FFELP Loan borrowers who would have previously been eligible for a waived free through rehabilitation are no longer eligible. The good news is that the population affected by this reversal will in all likelihood be small. The bad news is that these affected borrowers may now encounter a fee with each defaulted loan that they could have avoided in the past.
Of course just because lenders are free to charge this fee doesn’t mean that they necessarily will. If you are curious as to whether this change will affect you, please call your federal loan servicer. It’s important to stress that default is always something to avoid. No matter the type of student loan you borrowed, if you are experiencing difficulty with repayment, please work with your loan servicer. Federal loans in particular have many different repayment options designed to ease the burden of repaying your loans so that you can avoid default altogether.
All debt collectors for FFELP Loans have collectively agreed not to charge the above-mentioned fee to any borrowers that agree to pay up on their late loan payments within two months.