USA Funds Sues Department of Education Over Collection Fees

Originally reported by InsideHigherEd, student loan guaranty agency USA Funds (USA) filed suit last week in federal court against the Department of Education (Department) over a letter the Department sent on July 10, 2015 prohibiting agencies from imposing collection fees on borrowers who default on their loans but initiate payment arrangements within 60 days.

USA Funds is a nonprofit “guaranty agency,” which, pursuant to certain loan programs under the Higher Education Act of 1965 (HEA), “guarantees” student loans by private lenders. When borrowers default, USA Funds pays the private lender and assumes the loan, receives reinsurance from the Department of Education (Department) for most of the value of the loan, and then proceeds with collection efforts against the defaulted borrower on behalf of the Department.

The HEA provides that guaranty agencies shall assess reasonable collection costs [editor’s note: these typically range from 15-20% of the value of the loan] to borrowers who default on their student loans, and that guaranty agencies “may” charge such collection costs to all defaulted borrowers up to certain statutory limits, without exception.

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