A month before student loan payments are scheduled to restart, a federal appeals court has reinstated a ban on student loan collectors charging collection fees to some borrowers who default.
In 2019, the federal government blocked guarantee agencies from charging high fees to borrowers who defaulted but took action to repay or rehabilitate their loans within 60 days. Ascendium Education Solutions, a guarantor of federal student loans and debt collection agency, sued in 2019 to block the rule, arguing the department didn’t have the authority to issue the rule.
A lower court ruled in March 2022 that Ascendium didn’t have standing to sue but that the rule did exceed the department’s authority, vacating the rule with respect to borrowers who enter rehabilitation agreements. The U.S. Court of Appeals for the District of Columbia Circuit overturned that ruling in a decision issued Tuesday.
“The act permits guarantors to charge borrowers only for ‘reasonable collection costs,’ and the department permissibly implemented that directive by ensuring that borrowers who create little or no collections work for a guarantor are not charged thousands of dollars in fees,” the court’s ruling states. “Ascendium’s position—that the act always permits it to recoup collection costs from borrowers—conflicts with the statute’s clear, overarching directive that guarantors may collect only ‘reasonable’ fees.”