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Student borrowers owe $200 billion

April 14th, 2016

 

Upon conducting a study over the course of the past six years, The Wall Street Journal reported that more than 40 percent of Americans who borrowed from the government’s main student-loan program are not making the required payments or are behind on more than $200 billion owed.  This recent calculation raises worries that millions of them may never be fully repaid during that student’s lifetime.

 

These recent statistics represent the disappearance of a decade long borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools since the beginning of the 21st century.

 

While most have since left school and joined the workforce, 43 percent of the estimated 22 million Americans with federal student loans were not making payments as of Jan. 1 2016, according to a quarterly review of the Department of Education’s $1.2 trillion student-loan portfolio.

 

About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind, Bloomberg reported.

 

There are another three million people owing almost $110 billion who received permission to temporarily halt payments due to a financial emergency, such as unemployment. However, the figures exclude borrowers still in school and those with government-guaranteed private loans.

 

Last year the situation improved slightly when the nonpayment rate was 46 percent, but that progress largely reflected a surge in those entering a program for distressed borrowers to lower their payments, The New York Times reported.

 

Enrollment in those plans, which affect monthly bills by tying these payments to a small percentage of a borrower’s income, jumped 48 percent over the year to 4.6 million borrowers as of Jan. 1, 2016, The Wall Street Journal reported.

 

Advocacy groups, some members of Congress and the federal Consumer Financial Protection Bureau are not reaching out to troubled borrowers to offer an array of payment options that work for each individual’s financial situation.

 

In addition, Navient Corp., which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default reported The New York Times.

 

Over the past two terms, the Obama administration has made efforts to reach borrowers and offer the income-based repayment plans that are necessary.

 

On the other hand, the Department of Education officials note that some defaulted loans are from prior decades and, unlike private lenders, the government is severely limited in its ability to write them off and remove them from the books.

 

They also point out that the growth in defaults, delayed responses, and consequences slowed last year, suggesting progress in the administration’s efforts to get borrowers to repay their loans.

 

Some borrowers are not repaying even when they are able to. Borrowers prioritize other bills such as car loans, mortgages and heating bills over student debt.

 

A borrower who fails to pay down an auto loan might have his or her car repossessed; with student loans, there is no such threat to their career.

 

Most borrowers who have defaulted owe relatively little over $8,900, which the medium amount owned that the Education Department has reported on their website, according to Bloomberg.

 

Many borrowers who are current on their loans are paying very little. More than a third of borrowers on an income-based repayment plan had monthly payments of zero because their incomes were so low, according to The New York Times.

 

The administration maintains that the student-loan program, as a whole, will generate a profit over the long term, but the risk is rising that its revenue won’t meet the administration’s projections.

 

Editor’s Note: Information from Bloomberg, The New York Times and The Wall Street Journal was used in this report.