Paying off student loans is challenging now, and it may be about to get even worse.
The Department of Education hires debt collection companies that help borrowers stick to reasonable student loan repayment plans. Until last week, the department was incentivized to award these Federal Student Aid contracts to companies with the strongest records of helping borrowers and the lowest rates of loan defaults. The policy encouraged companies to work with borrowers instead of forcing them to default and discourages providers from issuing risky loans.
But last week, in what she characterized as an effort to "limit costs," Education Secretary Betsy DeVos revoked that policy, meaning the government is no longer required to consider factors such as default rate and customer service when awarding contracts to debt collection companies.
Americans are already struggling to manage student debt. U.S. citizens now hold a whopping $1.31 trillion in student loan debt. During the Obama administration, 8.7 million Americans defaulted on their student loans — a rate of approximately one default every 29 seconds.