Good news for struggling former students

TEXT OF STORY

LISA NAPOLI: The U.S. Department of Education is considering limits on the fees universities charge for collecting on defaulted student loans. Some schools have been charging former students as much as 66 percent of the original debt. Marketplace’s Sam Eaton reports.

SAM EATON: It’s a familiar scenario says Luke Swarthout with U.S. PIRG’s Higher Education Project.

LUKE SWARTHOUT: The student with $10,000 in debt leaves school, doesn’t complete. After a period of nine months their loan goes into default. They don’t repay in the first efforts of the collection agency and a second collection agency pursues the loan.

Under federal law Universities determine the penalties on defaulted loans, so long as those fees are “reasonable.” But Swarthout says that’s where the rub is.

SWARTHOUT: A student who already has a challenge repaying a $10,000 loan is going to have an even greater challenge repaying $16,000 in debt if you tack on a 60 percent collection fee.

Universities say they need to recoup those costs in order to fund new student loans. The Department of Education’s proposal would likely cap fees closer to the 16 percent average for student loans administered by the government.

I’m Sam Eaton for Marketplace.