Lenders Can Charge 16% Fees on Borrowers Who Miss Payments as Average Student Debt Tops $37,000
Trump’s Education Secretary Betsy DeVos may not know basic education policy, but she understands how to help companies that fleece struggling students, especially when one of those companies is tied to one of her former top aides.
Billionaire heiress DeVos axed former President Barack Obama’s policy that prohibited companies from gouging people who default on federal student loans but quickly make arrangements to start payments again.
Now people who miss payments on these loans could end up being charged fees of 16% of the total loan amount.
The shift comes as the average amount that students owe has more than tripled in the last two decades. About half of bachelor’s degree recipients in 1993-94 graduated with debt, averaging a little more than $10,000. Now, more than two-thirds of college graduates borrow to attend college. The average debt is about $37,172.
“You wind up disadvantaged just as you begin,” said Melinda Lewis, an associate professor at the University of Kansas School of Social Welfare. “It has reduced the ability of our educational system to be a force for upward mobility.”
The largest company in the nation that profits from students struggling to pay back these loans is United Student Aid Funds Inc. It and other guaranty agencies ensure federal student loans against default and pay off lenders when the borrowers default.
United Student Aid Funds Inc., now part of Great Lakes Higher Education Corp., which was run by Bill Hansen whose son, Taylor Hansen, was recently one of heiress DeVos’s advisers. United Student Aid Funds Inc. also had been in a two-year legal battle over its fees with the Education Department and a proposed class action lawsuit.
DeVos reversed the Obama policy on March 16, saying the Obama position “would have benefited from public input.”
DeVos was confirmed after a Senate hearing in which senators were only allowed five minutes each to question her. Some of those questions revealed that DeVos thought guns might have a place in school because of grizzly bears. Other questions revealed that DeVos didn’t know about a landmark law that serves children with disabilities.
Sen. Elizabeth Warren (D-Mass) questioned DeVos about her commitment to protecting taxpayers from student loan abuse.
“The financial futures of an entire generation of young people depend on your department getting that right,” Warren told DeVos.
DeVos, daughter of a wealthy auto parts manufacturer who married into the family of a founder of multi-level marketer Amway, didn’t have to borrow money from the federal government to attend Calvin College in Grand Rapids, Mich. Her children didn’t have to borrow money to attend college either.
The ethics report that heiress DeVos was required to file showed she also had a personal connection to companies that fleece students.
One of those companies was LMF WF Portfolio which helped finance a $147 million loan to Performant Financial Co. which does business with the Department of Education. Performant, which has a history of complaints such as calling a 90-year-old World War II veteran about a student loan that didn’t exist, recently lost out on a contract with the Department of Education.
Students who take on more debt than they can easily handle are more likely to put off buying homes, getting married or having children. They are more likely to work at more than one job to try to manage the payments.