Student Borrower Advocacy in the Trump Administration

Michael Lux Blog, News, Student Loans 0 Comments

This past week has been very illuminating.  In a short period of time we saw an Obama-era borrower protection eliminated, cries of ethical violations and insider dealing, and a bit of progress in stopping a bad rule from hurting borrowers.

Given that President Trump is still in his first 100 days, the events of the week serve as valuable insight into what we can expect from his administration and the value of speaking out on important issues.

A Borrower Protection Eliminated

Back in 2015, the Obama administration sent out a memo instructing federal debt collectors that they were not to collect default fees for borrowers who enter into an agreement to rehabilitate their federal loans within 60 days.  Previously, these collection agencies were able to collect a default fee of up to 16% of the balance of the loan for certain federal loans.  For borrowers headed into default, a balance growing by 16% represented yet another huge financial hurdle.

Fast forward to March 16, 2017, and the Department of Education issued a new memo, withdrawing the previous order of the Obama administration.  The reasoning behind eliminating the Obama rule was that the public was not given an opportunity to comment on it.

Ethics Concerns and Insider Dealing

In addition to the policy concerns about charging such a hefty fine for borrowers who were taking steps to address their debt issues, there were also concerns about the potential financial gain for those closely related to the decision makers within the Department of Education.

The criticism centered around Taylor Hansen, a former lobbyist who represented for-profit colleges.  In addition to his lobbying efforts, Taylor Hansen is also the son of Bill Hansen, who was the President and CEO of United Student Aid Funds (USA Funds).  USA Funds is better known to borrowers at Great Lakes Higher Education, one of the companies that was profiting from the ability to charge a 16% default fee.

The day after the memo authorizing the default fees was issued, Taylor Hansen resigned his post within the Department of Education.  Outrage poured in a critics called it an early Father’s Day gift in the Hansen household and Senator Elizabeth Warren saying that “there’s no question” that the family ties posed a conflict of interest.

Great Lakes Backs Down

On March 21, Great Lakes issued a press release saying that they would continue to honor the Obama rule and not charge borrowers who enter into rehabilitation agreements within 60 of default.  Great Lakes attributed the decision to a court ruling, but the timeline would certainly suggest that the public outcry over the policy change had something to do with it.  The new Great Lakes position certainly subdues the argument that the Hansen family is benefiting from the new policy.

The Lesson

Despite the very suspicious circumstances in which a rule was generated, public outcry over the issue can lead to positive results.  This is a great example of the importance of following activity within the Department of Education and speaking out against conflicts of interest.

However, the news is not all good.  Just because the Hansen family may not be profiting as much as they might have liked, the Department of Education’s new policy is still in place.  Borrowers who deal with companies other than Great Lakes are still likely to be charged the 16% default fee, even if they take immediate steps to address their student loan issues.