Student Financial Aid and Student Debt

D.C. Battle Over Charges for Repaying College Student Loan Fees

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Politico reports on a battle that affects anyone with college debt. If you defaulted on your loan but then agree to repay it, should you still pay a hefty fee to the debt collection agency?

POLITICAL MUSCLE TO PROTECT FEES: Amid a brewing political and legal battle over student loan collection fees, United Student Aid Funds – a guaranty agency at the center of the fight – is stepping up its lobbying game. Records filed this week show the organization spent $90,000 in the first half of 2016 to lobby against an Obama administration directive that limits its ability to charge certain fees to defaulted borrowers – the same amount it spent in lobbying during all of 2015.

– At issue is whether guaranty agencies collecting federally-backed loans are allowed to impose collection fees when a borrower defaults on his or her debt but quickly agrees to start repaying. The Obama administration says no. But USA Funds argues that the Higher Education Act permits them to impose such fees, and that the fees were longstanding industry practice before the Education Department’s directive upended it last year.

– USA Funds is now fighting that guidance in federal court, where its attorneys [] and the government’s lawyers [ ] sparred in filings this week over whether Congress originally intended to allow the fees. An attorney for USA Funds previously said that “hundreds of millions of dollars” are at stake in the case for his client and other guaranty agencies.

– But the non-profit organization – which is led by Bill Hansen, a former top education official in the Bush administration – is also waging a political fight against the Obama administration’s prohibition on the fees. In recent months, USA Funds hired lobbyists such as Ed Pagano, who was Obama’s deputy assistant for legislative affairs and a former Sen. Tom Harkin staffer, and Arshi Siddiqui, a former senior adviser to House Minority Leader Nancy Pelosi.

– A legislative provision blocking the administration’s ban on the fees was slipped into the education funding bill that House Republicans initially proposed earlier this month [ ]. But lawmakers removed the policy rider from the bill last week after Rep. Marcy Kaptur (D-Ohio) indicated she would fight the measure. In an email to Morning Education, her office called the rider “particularly insidious for disadvantaged student debtors.”

– An appeals court last year sided against USA Funds on this issue, ruling that a Minnesota woman was incorrectly charged $4,547 in collection fees (on her roughly $18,000 in outstanding debt) as she was trying to get her loans out of default. The Supreme Court declined to hear an appeal and that case is back at the district court [ A judge is now weighing a decision in the separate lawsuit between USA Funds and the Education Department.

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