Earlier this month, the Department of Education released a memorandum that, understandably, unleashed a wave of panic over millions of Americans.
The memorandum reversed an Obama-era policy that prevented debt collectors from demanding expensive collection costs from borrowers who entered repayment agreements within 60 days of receiving notice of their debt.
Under the new policy, loan companies are allowed to immediately charge debtors collection costs of up to 16 percent of the total amount owed.
The policy reversal from the Department of Education naturally outraged many, including Democratic Senators Dick Durbin and Elizabeth Warren.
Senator Durbin said about the decision:
‘Unnecessarily adding to Americans’ student loan burden is no way to help struggling families or the U.S. economy.’
Meanwhile, Senator Warren, along with Rep. Suzanne Bonamici, sent a letter to Education Secretary Betsy DeVos asking her to reconsider. Warren and Bonamici argued in their letter that the 16 percent collection fee is a “step in the wrong direction” that will result in “an unnecessary financial burden on vulnerable borrowers.”
While DeVos may not have responded to the concerns expressed by congressional Democrats, the loan companies, surprisingly, have. Twenty-six loan companies have announced in the last week that they will not automatically charge the now-allowed 16 percent.
According to Bloomberg, these companies have decided not to automatically charge the 16 percent default fee as long as debtors “agree to make good on their debt in two months’ time or less—and keep their promises.”
Several of these companies have released statements explaining their decision, including Great Lakes Higher Education Corp., Texas Guaranteed Student Loan Corp., and the National Council of Higher Education Resources, which released a statement on behalf of “all other guaranty agencies.”
All three statements include slightly modified versions of the following message:
‘Notwithstanding the Department of Education’s March 16, 2017, decision, prompted by a request from a federal judge, to withdraw that Dear Colleague Letter, guaranty agencies are continuing their practice of not assessing collection costs on borrowers who enter into a rehabilitation agreement within 60 days of default and then honor that agreement.’
James Patterson, the President and CEO of Texas Guaranteed Student Loan Corp., also pointed out in the company’s statement that the goal is to help students repay their loans, not to make things more difficult for them.
‘For more than 30 years, TG has not assessed collection fees when a student enters repayment or rehabilitates their student loan within the requisite period of time, and we have no plans to modify this policy. Many student loan borrowers already have a difficult time managing their loan obligations. At TG, we want to help them successfully repay their student loans. Adding more fees does not help their situation.’
This surprising move by those who stand to profit from the high collection costs allowed by the Department of Education will benefit up to 11 million debtors who altogether owe $231.4 billion.
Secretary DeVos’s spokesman, Matthew Frendewey, declined Bloomberg’s request for a comment on the loan companies’ decision not to automatically charge the collection fees.
Featured image via Alex Wong/Getty Images.