The number of student loan borrowers that failed to make a payment on their loans for nine or more months increased 14 percent in 2016 according to a new study by The Consumer Federation of America using data from the Department of Education.
The consumer watchdog found that a total of $137.4 billion in federal student loan balances were in default at the end of 2016 which was up from the previous year. What’s more, the average amount owed on federal student loans stood at $30,650 for the end of 2016, marking a 17 percent increase since the end of 2013. In terms of Direct Loans, the Consumer Federation of America found that 1.1 million borrowers were in default last year. According to statistics from LendEDU, the national default rate was 11.8 percent earlier in the year.
Interestingly enough, the Consumer Federation of America also found in its new analysis that millions of people are defaulting on loans that are serviced by companies with federal government contracts. “3,000 preventable student loan defaults each day in America is 3,000 too many.” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and formerly the Consumer Financial Protection Bureau’s Student Loan Ombudsman. “Our broken system works well for the student loan industry, but is failing borrowers, taxpayers, and our economy.”
Entrusted by the federal government, a student loan servicer’s job is not limited to collect payments, but it also must place struggling borrowers in repayment programs ensuring that they pay back their loans and avoid crippling debt. According to a recent survey by LendEDU 47.65 percent of parents polled think their child will benefit from a federal student loan forgiveness program after graduation.
The consumer watchdog pointed to the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans, which can cap payments at around 10 percent of income, as ways loan servicers can help, but they aren’t doing enough to steer borrowers into the programs, adding to the bad press.
Adding to the brevity of the student loan crisis, it’s not just young borrowers that are struggling with outsized student loan debt. Older Americans are also defaulting on their student loans with close to 40 percent of federal student loan borrowers age 65 or older currently in default.
While the national default rate is high and worrisome, some districts in the country have default rates that are even higher than the national average. The default rate from state to state and district to district varies considerably, but there are a few standouts in the crowd. Take Florida’s Districts 9 and 6. In these districts, the student default rates are 17.3 percent and 14.82 percent, respectively. Meanwhile, New Mexico’s district 2 has default rates of 18.82 percent and Tennessee’s District 7 has a default rate of 17.7 percent according to LendEDU.
Author: Dave Rathmanner
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