Secretary of Education Betsy DeVos speaking at CPAC in February. 

Betsy DeVos and the Department of Education handed student loan and debt collection companies a big break after reversing a rule that limited fees incurred on borrowers who defaulted on their student loans.

A letter was published and signed on March 16 by Acting Assistant Secretary Lynn Mahaffie. In its contents, the letter detailed the previous rule that barred debt collection agencies and student loan companies from charging fees to defaulted borrowers. Then it promptly rescinded the regulation claiming that it would have benefitted from public input on the issue. The new decision will allow guaranty agencies to charge defaulted student borrowers a fee that is equal to 16 percent of their total balance.

While those having difficulty paying back their student loan debt won’t be happy with the news, there are some who will benefit from the decision. United Student Air Funds, a guaranty agency, would benefit significantly; in fact, the company is projected to earn an extra $15 million as a result of the decision. Some would argue that this decision presents a conflict of interest.

Survey Details Financial Goals of Student Borrowers in 2018

United States Air Funds is led by Bill Hansen who is the father of Taylor Hansen, an adviser to DeVos who recently resigned. For the past two years, the guaranty agency has been fighting the Department of Education over the regulation on default fees.

This finding has led many Democrats to call out the Education Secretary on the alleged conflict of interest. Critics like Ben Miller of the Center for American Progress and Senator Elizabeth Warren immediately criticized the rule change via twitter.

In the meantime, guaranty companies see this decision as simply correcting a wrong done to them by the Obama administration. Not only will United Student Aid Funds be able to resume handing out fees to delinquent borrowers, but other companies won’t have to deal with reversing years of assessed fees and recalculating balances on thousands of accounts.

Student loan debt has been a hot button issue with lawmakers with Americans owing $1.4 trillion in student loan debt and around 5 million borrowers in default.

Image Copyright © Michael Vadon