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  • Writer's pictureAaron J. Keller

Positive News for Student Borrowers in New York as State Abandons 22% Fee on Collections

Bloomberg reported on some positive news out of the Empire State this past week; Governor Kathy Hochul signed a law that will end the assessment of a 22% collection fee against student loan borrowers who default on their loans and against whom the state seeks a judicial collection.

In practice, this law will only impact a small portion of the overall student loan market - those students getting state educational loans instead of the much larger number of federal student loan borrowers - but it is nonetheless very welcome news. This bill will likely benefit those borrowers most in need of relief and will almost certainly have little to no impact on the state of New York's fiscal situation, as the state likely recovered little to none of the 22% fees it ever assessed.

As the Bloomberg article notes, the average balance of a State University of New York graduate with student debt is roughly $3,500. If a student is unable to pay off a $3,500 debt, that student is almost certainly financially insolvent. The typical remedy in that situation is to file for bankruptcy to get a fresh start and have outstanding debts removed, but student loan debt can be especially difficult to have discharged in bankruptcy. In practice then, these students are left with non-dischargeable debt that continues to accrue interest, and in this case, a 22% administrative fee from the state as it sues to recover the amount due. Unable to pay, the student then simply gets an ever larger outstanding bill that he or she cannot pay and serves only as a discouraging and demeaning albatross on their financial record. It's more financially productive for both the individual and the government to get the student in a healthy fiscal position instead of seeking punitive enforcement measures, especially in this case where the student undertook the debt only to try to gain new skills for a future career.

You can read the entire Bloomberg article here.

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