The motivation behind Education Secretary Betsy DeVos’ recent decision to gouge defaulted student debtors has now been revealed.
On Thursday, the U.S. Department of Education issued a Dear Colleague Letter (DCL) to student loan providers, telling them to disregard a previous DCL issued by the Obama administration that prohibited them from charging student borrowers whose loans were in default excess fees of as much as 16 percent of their total loan balance.
United Student Aid Funds (USA Funds), which is one of the largest servicers of student debt in the country, will almost certainly see a financial benefit as a direct result of the Department of Education’s recent DCL. According to Bloomberg, USA Funds has been tied up in a two-year legal battle with the agency over the student loan fees, and now stands to gain roughly $15 million more per year in revenue.
This presents a clear conflict of interest for DeVos and her agency, as USA Funds was owned and operated by William D. Hansen until January 1 of this year, who served as a Deputy Secretary of Education in former President George W. Bush’s first term. Hansen’s son, Taylor — a former lobbyist for for-profit colleges — was one of Secretary DeVos’ top advisors up until last Friday, when he abruptly resigned one day after DeVos issued the DCL green-lighting the new fees for defaulted student debtors. Bloomberg reported that USA Funds was charging borrowers the excess fees up until the Obama administration’s 2015 DCL.
Aside from the financial benefit to student loan servicers like USA Funds, the penalties for charging defaulted borrowers the excess fees may have resulted in significant legal blowback. After the Obama administration issued the ruling prohibiting student loan companies from charging the fees, a judge warned of a potential wave of lawsuits stemming from the fees, as they would be seen as a violation of federal anti-racketeering laws. Had the lawsuit filed by student loan providers against the Obama order failed in court, the entire student loan industry would have been vulnerable to lawsuits, according to Bloomberg.
Data from the New York Fed shows that more than 4 million students have loans in default, out of an estimated 44 million borrowers. American student debt has now exceeded credit card debt, with over $1.3 trillion and counting in total debt.
Tom Cahill is a writer for the Resistance Report based in the Pacific Northwest. He specializes in coverage of political, economic, and environmental news. You can contact him via email at [email protected], or follow him on Facebook.