Secretary of Education Betsy DeVos recently reversed an Obama-era regulation that limited fees debt collectors could charge on student loan debt — a move Democrats characterize as a gift to a former DeVos adviser whose family is in the student debt collection business.
The student debt crisis will get worse
On March 16, the Department of Education released a memorandum reversing an Obama administration directive that prevented debt collectors from charging certain fees, called collection costs, on student debts if borrowers entered into repayment agreements within 60 days of receiving notice of the debt. Under the new guidelines, guarantors can charge collection costs of up to 16%.
That's likely good news for United Student Aid Funds, which has been locked in a two-year legal battle with the Department of Education over the rule. The company stands to gain $15 million in revenue annually from DeVos' decision, Bloomberg reported.
William "Bill" Hansen, a former deputy secretary of education under President George W. Bush, served as president and CEO of the company from 2013 to 2017. Hansen's son, Taylor Hansen, a former lobbyist for for-profit colleges, was a key adviser to DeVos until March 17. Hansen resigned from the DOE one day after the new rule went into effect, DOE spokesman Jim Bradshaw told Bloomberg.
Democrats were upset. Senator Elizabeth Warren of Massachusetts, a darling of the Democratic party's progressive wing, and Congresswoman Suzanne Bonamici of Oregon sent a letter on March 13 to DeVos urging her to uphold the Obama guidance, but their plea seemingly went ignored. Later, Warren told Bloomberg there was "no question" that Hansen's family connection to the country's largest student debt collector posed a conflict of interest for DeVos.
Defaults on the rise
The new rule came days after a report by the Consumer Federation of America showed millions more Americans had defaulted on student loans in 2016 than in 2015 — an increase of about 14% year-over-year. "Despite a rising stock market and falling unemployment [rate], student loan borrowers are still struggling," Rohit Chopra, a senior fellow at CFA, told the Washington Post. "The economy remains very difficult for so many young people just starting out."
Liberal groups were outraged at the new rule. "We have no idea what Betsy DeVos thinks about or wants to do on higher education policy," Ben Miller, a senior director of the Center for American Progress, said, according to Bloomberg. "If one of the key people advising her is someone whose close family member is hoping to charge defaulted borrowers a lot more money, that’s not a good sign of her agenda."