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People are struggling to pay their student debt. And now collection agency fees may go Natalia Angulo-Hinkson
Economics & Business

WATCH |  Being buried under student debt is soul crushing enough. Imagine having to answer to a debt collector because you just can't make a payment.

America has student debt crisis.   A staggering number of borrowers are defaulting on their student loans. 

One in three student borrowers are late with their payments, a study out of the George Washington University School of Business showed. Analysis of Department of Education data from the Consumer Federation of America revealed 4.2 million borrowers were in default in 2016, meaning they hadn't made a payment in at least a year.

And now, those who default could face much higher debt collector fees.

The Trump administration announced earlier this month a decision to roll back an Obama-era guideline barring collection agencies from charging a premium to defaulted borrowers. The reason? They believe the memo needed a closer look by the public eye.

While the headlines might freak borrowers out, experts have said it impacts a subset of people with FFEL (Federal Family Education Loan) program loans held by guaranty agencies. 

"It does affect some people, but on a going forward basis, it's not something to worry about," Vanessa Davis, VP of legal research and product development at LegalZoom, told Circa.

She explained the change doesn't mean fees will automatically go up, or that anything will end up changing at all. And since that type of loan isn't being issued anymore, it won't be a problem for people borrowing now.

Tell me more about this memo.

The now-reversed memo prevented agencies from charging fees for up to 16 percent of interest owed on the loans, so long as the borrower entered a government loan rehabilitation plan within 60 days of defaulting.

In a letter, the Trump administration said the memo was invalid because it didn't provide "an opportunity for public comment on the issues." The change won't impact borrowers with loans through the Education Department.

Either way, experts are still worried people don't know what they're getting into when they sign up for student loans.

"Half of the people who have student loans have not calculated how much it would take to repay those student loans," Dr. Annamaria Lusardi, Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business, told Circa.

Not surprisingly, more than half of student loan holders say they regret borrowing.

And if you can't pay?  Davis says communicate that with the company processing your loan and try to negotiate. 

"Everybody wants to work with you to get something," she said. "Nothing is set in stone and they want you to keep maying payments. And, the default doesn't help anybody."

At what point should you lawyer up?  If debt collection agencies are coming after you aggressively or a lawsuit is filed against you, that's when you reach out to a student loan attorney, Davis said.

What worries Lusardi and other experts is the stress debt puts on both students and society.

The number of student borrowers has jumped from 23 to 43 million in the last decade. Student loans are the common form of consumer debt after home mortgages and the amount owed has surpassed credit card debt.

"Are they going to be able to buy a house, to buy cars, you know, to get married? To have a normal, in a sense, economic life," she said. "There are costs for them, but there are also costs to society, potentially."