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Trump Administration Cancels Grace Period and Adds on Big Student Loan Collection Charges

Written by Steve Rhode

If the recent position by the Department of Education under the Trump administration is any indication of what is to come for federal student loan debtors, watch out.

On March 16, 2017 the Department of Education rolled back protections and policies impacting those who hold FFEL federal student loans. The most recent numbers say about 4.2 million loan holders are in default on these loans at this time. Millions will be impacted by this policy change effective immediately as FFEL loan holder default.

The Obama administration had issued guidance in 2015 that when someone defaulted on a FFEL student loan that they had 60 days to bring the loan back into compliance and current and avoid the tacked on collection charges of up to 16% of the loan balance. This could be accomplished through programs such as the student loan rehabilitation program. It would all debtors to get back on track without exploding their student loan balances with massive collection costs beyond the already unaffordable amounts due.

Under the Obama administration policies, “A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement.” – Source

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The rationale given for this clarification was the distinction between a debtor who defaulted but intended to repay and one who was not going to make arrangements and thus cost significantly more to collect from. If a debtor defaulted and then entered into a repayment arrangement what would justify 16% of the loan balance in collection costs? Nothing.

But this policy of giving defaulted FFEL loan holders a grace period to get back on a payment plan goes back to the 1980s and 1990s. This was not an Obama policy.

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In 1986, the Department of Education adopted regulations to establish the procedures for referring defaulted debt, which include giving the debtor notice of the proposed offset and an opportunity to avoid the offset by entering into a satisfactory repayment agreement. This policy was restated in 1992 when the then Department of Education said “the borrower could avoid the adverse consequences (report of the default status of the debt, liability for collection costs, and further collections actions) by making a timely agreement to repay the debt voluntarily.”

That’s all changed now. According to the “Dear Colleague” letter that was just released, the Trump Department of Education is withdrawing those policies and so debtors who default on FFEL student loans will have no grace period and will now face large collection fees to be immediately tacked on to the loan balance due. In essence, those who can least afford the default will be penalized and have no incentive to rehabilitate their loans. – Source

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The Betsy DeVos Department of Education says the reason to roll back these rules and policies is because there was an insufficient public comment period when the policies were put into place. Does anyone really believe the FFEL student loan debtors would argue against such a policy? It leaves you wondering why the policy could not have been left in place during a new public comment period and then a decision made. To me it sure seems like a Ready-Fire-Aim approach at dealing with student loan collections and student loan debtors in trouble.

But then of course, the immediate and obvious beneficiary of such a position is going to the be collectors and guaranty agencies who administer those loans.

What do you think? Comment below.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • Sounds like it goes back to the original terms of the contract. Who in particular gets the extra 16% pointed at their coffers?

  • I’m TOTALLY screwed now and can’t even pay what Navient “thinks” I can pay – under a 10 year plan (seriously was NEVER going to happen) the bill I received was around of $4,500, if not more!!!! I went to law school at the wrong time 🙁 Please tell me why I worked soooo hard to make something of myself when all it did was make me worse off than when I was 20, in school and working 2 jobs?!?! Does the “Great Depression” ring a bell??? Taking away the funding for the Pell Grant (was nearly all of the funding) and putting this policy in place is only hurting those of us who actually go to school for a career instead of working “jobs” for the rest of our lives, only making $9 or $10 dollars an hour! He effectively destroyed the lower class getting the Pell Grants of those of us in the “middle class” who are still scraping to get by.

      • Thanks for the advice! Unfortunately I’ve had a couple of different payment plans, but seems like a huge bill from forever ago suddenly comes in & that’s the urgent one and needs paid off now before court action is taken. They put you in a never ending judgment of hell because a “computer” spits out a number and says that’s what you can afford, yet they NEVER figure in all of your monthly bills!

        • Have you tried to consolidate all together into one new Direct Loan and elect an income driven repayment plan?

          Unfortunately the payment calculation is NOT based on your bills. Here is the official formula. For Income-Based Repayment, Pay As You Earn, and loan rehabilitation, discretionary income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence. For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence. The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at

  • That’s a bunch of BS!!! I am struggling now to pay!! I have never been in default but fear its coming! I have several medical bills to pay and now that I have bladder cancer my additional cost every month is $250 just for my supplies!! I feel helpless!!

  • It makes me sick, but doesn’t surprise me at all. This administration wants the ordinary folks destroyed and the corporations/banks to make as much money as possible off our backs. This will really hurt millions of people.

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