March 14, 2017

Warren, Bonamici Urge Administration to Protect Student Loan Borrowers from Unnecessary Fees

Full text of the letter available here (PDF)

Washington, DC - Senator Elizabeth Warren (D-Mass.) and Congresswoman Suzanne Bonamici (D-Ore.) have asked the Department of Education to stand up for struggling student loan borrowers by keeping in place commonsense limits on the fees charged to those who have defaulted on their loans.

Borrowers who default on loans made under the Federal Family Education Loan Program (FFELP) may be assessed a collection fee of up to 16 percent of the principal and accrued interest owed on the loans. The Department of Education clarified, however, that the law exempts borrowers who promptly enter rehabilitation agreements and successfully cure their defaulted loans are exempt from the 16 percent fee. As part of an ongoing lawsuit over this exemption, a federal judge has order the Department to decide this week whether it will stand by its policy prohibiting collection fees on borrowers who take action quickly to repay their defaulted loans.  

"The 16 percent collection fee is enormous and results in an unnecessary financial burden on vulnerable borrowers" the Members wrote. "Congress gave borrowers who 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."

They continued, "The Department and Congress must do more to help student loan borrowers manage their payments and avoid the long-term consequences of default. Penalizing borrowers who take prompt action to cure their defaulted loans is a step in the wrong direction."

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