More Twists in ED's 'Dear Colleague' Collection Fee Matter

Yesterday insideARM reported that the Trump Administration’s Department of Education (ED or Department) sent a “Dear Colleague” letter withdrawing an Obama Administration “Dear Colleague” letter prohibiting the collection of fees from borrowers who defaulted on student loans held by guaranty agencies, but entered repayment arrangements within 60 days. (Whew.)

Democrats cried foul, saying this only adds insult to injury for strapped borrowers, and pads the pockets of big companies.

Today, it seems the story is even more complicated than it was yesterday.

The story originates from a class action case in the Seventh Circuit, Bible v. United Student Aid Funds. Now owned by Great Lakes Higher Education Corp. (Great Lakes), United Student Aid Funds (USAF) is the nation’s largest guaranty agency, and has been battling the Department of Education in this matter for two years.

Yesterday afternoon Bloomberg reported about a connection between a former advisor to ED Secretary Betsy DeVos and USAF; Taylor Hansen, the son of Bill Hansen. Until last Friday, Taylor was part of the DeVos inner circle. Until January 1 of this year, Bill Hansen ran USAF.

The reason cited by DeVos’s letter for this rule reversal is that it wasn’t subjected to public comment. It turns out that much more was at stake. USAF (and others) had regularly charged borrowers the collection fee in question. Over the years, this amounted to millions of dollars – per company. The Obama Administration’s Dear Colleague letter prohibiting the fee would not only end this revenue stream, but it would generate an administrative nightmare and potentially create huge liability for past fees already collected.

According to the Bloomberg report, both ED and Bill Hansen’s current firm denied that there has been any impropriety. The report also noted USAF’s position that the Obama ED letter unfairly changed longstanding Department policy that allowed the fees, and that the National Council of Higher Education Resources (an industry group) said that in 135 audits or reviews of companies like United, the Department had never identified the fee as a problem.

Later yesterday, The Washington Post reported that Great Lakes said USAF “will not charge people with past-due student loans high collection fees if they agree to make good on the debt.”