The Department of Education is recommending changes to FFEL late fees and default rules that increase FFEL interest rates to as high as 16% when a borrower defaults on student loan payments. Current rules protect borrowers from high interest rate assessments on overdue student loans and stop collection efforts when borrowers enter payment rehabilitation programs within 60 days of defaulting on their FFEL student loans.
Under the proposed new rules, borrowers in default status could be charged interest rates as high as 16%. Collection efforts would start immediately upon default. A defaulted student loan is one that goes unpaid for 9 months or 270 days. FFEL loans are old federal student loans that were made prior to 2010. They account for approximately 25% of the existing 1.3 trillion dollars of outstanding student loan debt. If the proposed changes are approved by congress, the increased FFEL late fees and penalties could amount to an additional 65 billion dollars based upon the number of accounts presently in default.