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Education

Student loan servicers say they'll waive big collection fees

| Friday, March 24, 2017, 2:30 p.m.

Student loan servicers say they will disregard a Trump administration advisory permitting them to reinstate collection fees as high as 16 percent on borrowers seeking to bring loans under the Federal Family Education Loan program out of default.

Borrowers who sought to bring FFEL debt out of default within 60 days faced such fees until the Obama administration issued a rule banning them in July 2015.

The U.S. Department of Education rescinded the ban earlier this month despite President Trump's campaign pledge to ease the burden of student debt.

“Students should not be asked to pay more on the debt than they can afford. And the debt should not be an albatross around their necks for the rest of their lives,” Trump said while courting voters on the campaign trail in October.

Although FFEL, a bank-based student loan program guaranteed by the federal government, was phased out in 2010, some 7 million borrowers are still paying off $162 billion in outstanding FFEL loans.

The loans are just a small portion of about $1.4 trillion in outstanding student debt owed by about 40 million borrowers. But U.S. Department of Education reports show defaults in the FFEL program are on the rise.

U.S. Sen. Dick Durbin, D-Ill., called the administration's decision to permit the reinstatement of penalties on those seeking to come out of default “shameful.”

“Unnecessarily adding to Americans' student loan burden is no way to help struggling families or the U.S. economy,” Durbin said, urging FFEL loan servicers to give borrowers a second chance.

A spokesman for the Pennsylvania Higher Education Assistance Agency, which services some $32 billion in FFEL loans, said the agency would not invoke the high penalties on borrowers seeking to bring their debts out of default.

“We are not changing our collection practices,” PHEAA spokesman Keith New said Thursday.

Hours later, an organization representing loan servicers across the country weighed in on the issue.

Loan servicers have agreed to continue to wave penalties for borrowers who seek to bring FFEL loans out of default within 60 days despite the administration's decision, said James Bergeron, president of the National Council of Higher Education Resources.

Debra Erdley is a Tribune-Review staff writer. Reach her at 412-320-7996 or derdley@tribweb.com.

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