The Wrong Move on Student Loans

In Conflict of Interest, Education On
- Updated

The Obama administration made the right call in 2015 when it barred debt collectors from gouging borrowers who default on student loans and then agree to payment plans that let them make good on the debt and rebuild their ruined credit.

Education Secretary Betsy DeVos, showing more concern for the lending industry — which is essentially on the federal dole — than the borrowers the industry ought to serve, recently rescinded the directive, allowing the companies, known as guaranty agencies, to charge a predatory 16 percent fee on the debt.

Federal student loan defaults are dragging on the economy — making it impossible for people to buy cars or homes — and are increasingly following people into old age, where their Social Security benefits are being garnished for loan payments.

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Borrowers Bewildered

It was bad enough late last month when the Education Department, in a legal filing, informed the nation’s public servants that they shouldn’t trust its administrator’s word about whether their student loans qualify for its debt forgiveness program.

But the panic among borrowers that the newfound uncertainty unleashed helps illuminate an additional problem with the public service loan forgiveness program: Many people who believe that they qualify — and entered graduate school, borrowed piles of money and chose employers accordingly — may not realize that they are not making qualifying payments or that certain loans are not eligible for forgiveness.

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Suits Say Lender Duped Students to Fuel Growth

In recent months, the student loan giant Navient, which was spun off from Sallie Mae in 2014 and retained nearly all of the company’s loan portfolio, has come under fire for aggressive and sloppy loan collection practices, which led to a set of government lawsuits filed in January. But those accusations have overshadowed broader claims, detailed in two state lawsuits filed by the attorneys general in Illinois and Washington, that Sallie Mae engaged in predatory lending, extending billions of dollars in private loans to students like Ms. Hardin that never should have been made in the first place.

“These loans were designed to fail,” said Shannon Smith, chief of the consumer protection division at the Washington State attorney general’s office.

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DeVos Halts Obama-Era Plan to Revamp Student Loan Management

With the stroke of a pen this week, Betsy DeVos, President Trump’s new education secretary, thrust the future of the government’s system for managing federal student loans into confusion.

It was a high-stakes move: Her department administers $1.3 trillion in loans on behalf of nearly 43 million student borrowers.

At issue is which companies will handle the bulk of those loans in the future, and how they will do it. Under the Obama administration, the Education Department was on the verge of selecting a single vendor to build a new system for servicing its student loans, in what was expected to be one of the largest federal contracts outside of the military.

But on Tuesday, Ms. DeVos signed an order rescinding key parts of that attempt to streamline the system — essentially hitting the reset button on the Obama-era plan.

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Student Loan In Default? Say Goodbye To Tax Refund

Borrowers who have stopped repaying their federal student loans may get an unwelcome surprise during tax season: The refunds they were expecting may be withheld by Uncle Sam.

In what is called a tax refund “offset,” the government has the right to withhold funds from student loan borrowers who have fallen into default, and apply the money to the loan balance.

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