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You Can Now Be Fined For Falling Behind On Student Loans Even If You're Trying To Catch Up

People who fall behind on their student loans can now be charged thousands of dollars in late fees, even if they immediately attempt to catch up.

Posted on March 17, 2017, at 12:43 p.m. ET

Pool / Getty Images

Student loan companies will be free to charge thousands of dollars in fees to borrowers who miss payments, even if they immediately attempt to catch up, the Trump administration said Thursday, reversing Obama-era guidance that banned the charges.

The reversal was the first visible move on student loan policy by Trump's Education Department, and suggests the administration may ultimately take a more industry-friendly approach to student lending. In a statement, the Education Department said it was the rescinding the guidance because it "would have benefitted from public input."

The fees were criticized by advocates who said that they unfairly punished struggling borrowers who had immediately made efforts to get out of default.

Under Obama, the Education Department frequently sparred with large swaths of the student loan industry, including battles to cut payments to the companies hired to service and collect on more than $300 billion in indirect loans made before 2010. It eventually cut ties with five of its collection agencies in 2015, saying they had been misleading borrowers in order to maximize profits.

USA Funds, then the country's largest guarantor of indirect federal loans, sued the Education Department in 2015 for the right to charge a fee as high as 16% to people who had started to repay their loans within 60 days of defaulting. The woman at the center of the case had tried to repay her loans just 18 days after she was told she had gone into default — and then was hit with $4,500 in fees on a loan of $18,000.

In 2010, the Obama administration ended the lending program that put USA Funds into business, barring private corporations from originating federal student loans. But Trump advisors, as well as some Republicans, have said they want to get the government out of the student loan business altogether — a prospect that has caused the stock of student loan companies to rise sharply in the wake of the election.

A BuzzFeed News investigation, in partnership with the International Consortium of Investigative Journalists, based on thousands of documents the government didn't want you to see.