The Department of Education is preparing to roll back rules designed to protect students from predatory lenders who offer questionable interest rates and have turned their backs on federal student loans.
The Trump administration is expected to announce a new rule that will likely remove the requirement that students have to pay back their college loans within five years.
A senior official with the Department of Labor and Labor-administered Education, Workforce Development and Related Agencies told the Senate committee that the agency will revise the rule, which was proposed by former Labor Secretary Tom Perez in January.
If the agency adopts the new rule, it would likely apply to more than a dozen programs, including the Pell Grant, the GI Bill and the HOPE VI scholarship programs, said the official, who spoke on condition of anonymity because he was not authorized to speak publicly about the matter.
Under the new proposal, students would be able to refinance loans at a lower interest rate for the first year of repayment, then be able refinance after three years.
The rule also would allow borrowers to refinances at a higher rate for a maximum of three years if they meet certain criteria, including they are pursuing at least a bachelor’s degree, they have at least five years of income and they have been able to repay the loan at a rate below 5%.
It would also allow borrowers with outstanding balances of more than $1 million to refile the loan for up to 90 days at a 5% interest rate, a move that has angered some borrowers.
For students with outstanding debt, the change would make it much easier for them to refloat.
“I think it’s a good thing,” said Emily Schmitz, an associate director at the consumer advocacy group The Consumer Federation of America.
It’s good for the students, it’s good because it gives them an opportunity to pay down their debt and get a loan refinance,” she said.
Perez’s proposal has been opposed by many consumer groups and the Consumer Financial Protection Bureau.
In recent months, lawmakers have raised concerns about the proposed rule, with the American Bankers Association urging Congress to reject it.
President Donald Trump said during his State of the Union address on Jan. 15 that the rule would protect borrowers from predatory lending.
On Jan. 23, the Office of the Comptroller of the Currency, a consumer watchdog agency, sent a letter to the Education Department warning that the proposal could “undermine the ability of students to refinish their college debt,” according to a copy of the letter obtained by CNNMoney.
Trump signed the executive order, which would roll back the Obama-era rules, but did not explain the reasoning behind the new action.
The Trump-era rule required borrowers to repay loans at the original loan amount and then at least 90 days after the borrower has been able do so.
As a result, the Obama rules required borrowers who owed a loan to repay that debt at least 30 days after a student had been able pay it off.
The new rule would allow students to repay at the current rate without having to do that, and would allow them to continue to repay after three to five years if their loan had a 5%-plus interest rate.
The department is considering a range of alternative actions, according to the senior official, including revoking the rule or updating it to include other consumer protections.
The rules would apply to any student with a federal student loan, which are commonly referred to as federal Stafford loans.
The new rule will likely require borrowers to pay more toward their loan repayment costs than the current rules, and will likely be implemented in the first quarter of 2019, the official said.
The Obama-imposed rules, which were enacted to curb predatory lending, also require borrowers who owe federal student debt to pay it back within 30 days of receiving their federal loan payments.
Students have complained about the rules, saying they have struggled to pay off their loans in recent years.
Last month, the Federal Reserve Board, which regulates the federal student aid market, said that it is considering expanding the rules to allow more borrowers to defer repayment of federal student debts.
The Federal Reserve has previously said it plans to ease rules for students and families who have taken out federal student grants to allow them more time to repay their loans.
The Federal Student Aid Act, passed in 2007, requires students to make their payments on time each month, while the new rules would make payments more predictable.