Should You Worry About Trump's Ominous First Move on Student Loans?

In its first significant foray into the depressing world of student debt, the Trump administration last week ordered the Department of Education to disregard an Obama-era memo preventing guarantee agencies from charging high fees to some Americans defaulting on their loans.

Back in 2015, a woman named Bryana Bible sued USA Funds, a guarantee agency, for charging her $4,547 on a loan she defaulted on three years prior. Bible said she'd been attempting to repay the loan with a so-called rehabilitation agreement, a government-approved mechanism for struggling borrowers. She had a Federal Family Education Loan (FFEL), a structure used by roughly 7 million borrowers that is much less popular today than Direct Loans issued by the Department of Education, as the Washington Post reports.

As Bible's case made its way through court, a circuit appeals judge asked the feds for advice on how to deal with it. That ultimately led to President Obama issuing a memo barring loan companies from slapping huge fees on borrowers for at least two months after they go into default.

Under Trump's new policy, people who go into default—which usually happens after they don't make a payment for 270 days—on FFEL loans no longer enjoy that 60-day window of protection. President Trump's order cited a dearth of public input as the reason for rescinding the grace period. But advocates like Senator Elizabeth Warren warned 16 percent fees would really hammer borrowers. And a report released the same week as Trump's rule by the Consumer Federation of America showed there's been a 14 percent increase in defaults since last year.

Andy Josuweit, who runs the site Student Loan Hero, says there's an easy fix for people affected––they can go online and consolidate their FFEL loans into direct ones, in order to once again have the right to a 60-day grace period. Still, he says that while this first student-loan pronouncement from Trump is relatively benign for most student debtors, it's a "concerning" harbinger of things to come.

Back in October, some Americans drowning under their student loans saw an unlikely glimmer of hope in the Republican nominee, who advocated for simplifying the process by which borrowers could pay things back—even if it meant that it would probably cost the government more money in the long run.

But now the president has decided to rescind one of the few protections borrowers have achieved in recent years. It's a relatively minor attack on consumer rights but is in line with a larger vision of financial deregulation that Trump has signaled since taking office.

"It seems like it's turning into the Wild West West again," Josuweit says.

Follow Allie Conti on Twitter.