Trump’s Cancellation of Student Loan Protections

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Trump’s cancellation of Obama Student Loan Protections may actually grow the federal government’s involvement in student loans

Under the Trump administration, the Department Of Education has removed Obama era protections for student loan borrowers who want to rehabilitate their loans.

By making rehabilitation of privately held loans less attractive, borrowers are more likely to opt to skip rehabilitation and immediately consolidate their FFEL loans into the Federal Direct Loan Program to take advantage of income based re-payment programs.  When borrowers take this action, it moves loans from private balance sheets to the federal government’s.

Most likely though, The Trump administration’s decision to limit protections for FFEL loans for borrowers will likely have very limited impact for multiple reasons:

  • The protection was for those in default for less than 60 days (which occurs 270 days after ceasing payment). While duration of default data is not readily available, those that have that  have spent time working with borrowers recognize that highly responsible borrowers generally deal with payments problems early on by entering forbearance, deferment, or Income Based Repayment Programs prior to defaulting, and the rest often remain defaulted far past 60 days
  • Rehabilitation programs are not well publicized, well-known, or understood by the public, so relatively few people were actually taking advantage of them, to begin with

For borrowers behind on their loans, there are many options of which can help them, rehabilitation was actually one of the more cumbersome ones as it takes 9 months to complete.

Perhaps the most alarming part of this action it the Trump administration’s choice to take a scattershot, borrower un-friendly approach to the student loan crisis.  Operationally, there is also the issue of ensuring the student loan servicers understand this change and train their call centers to understand this change so they can communicate it to borrowers – a task the servicers are notoriously bad at doing.

Overall, this approach seems destined to create even more confusion amongst already confused borrowers without doing anything to address the causes or symptoms of the student loan crisis.

 

 

 

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