Madison (WKOW) -- Consumer advocates are crying foul at the Trump administration's change to let lenders charge high fees to those who default on student loans.
The White House announced it is rolling back an Obama-era directive that forbids student loan debt collectors from charging high fees to defaulted borrowers.
Before the memo sent to the Department of Education last week, students enrolled in the bank-based federal lending program, known as the Federal Family Education Loan (FFEL) Program, were protected from debt collectors, who could charge additional fees up to 16% of the principal and accrued interest.
"In addition to your principle of the amount of loans that you took out and the interest that you're being charged on that principle, you're also then getting charged an interest, another rate on top of that for defaulting,” said Analiese Eicher, program director with One Wisconsin Now, a research and advocacy group that does communication on a variety of issues, including what say calls “the federal and state student loan crisis.”
“One of the things that the Obama Administration did back in 2015 was put in place a rule that said if you default on your loan and within 60 days on defaulting on that loan enter the federal governments loan rehabilitation program that will help you get back on your feet, help you figure out how to make those payments, really navigate that process, that those agencies would not be able to charge those insanely high fees. Unfortunately, that is gone,” Eicher said.
Eicher said in Wisconsin has an incredibly low default rate, either at or just under 1%. But nationally, it's more of a problem, where she said student loan debt in the U.S. exploded.
“You use to be able to go to college for whatever money for made over the summer. It's just not a reality for today's students. So many students, myself included when I was in school, turned to federal loans and private loans to attend college in order to afford tuition,” Eicher said.
Eicher said we are looking at $1.4 trillion in student loan debt held by over 40 million Americans.
“That's a lot of money that folks are, a lot of debt that folks are holding on to that's not going into our economy.”
She believes people should be able to refinance student debt, the same way you refinance a house or car. If you find yourself in a tough place, you're only option is to default on your loan.
“Every other commercial transaction, you have protection. You can file for bankruptcy on anything from personal debt, high medical debt. You find yourself in a situation where you just can't afford to make all of your payments. And unfortunately those consumer protection don't exist for student loan debt.”
Last month, State Senator Dave Hansen and State Representative Cory Mason - both Democrats - re-introduced legislation that would allow families to refinance student loan debt at lower interest rates and deduct the interest on state income tax returns.
But republicans who control the legislature have not expressed any interest in the measure.