By Savion Sage, Contributor
WASHINGTON, D.C. — A recent federal report found that one in seven federal student loan borrowers have defaulted on loan repayments, revealing how former students are still struggling to pack back their loans due to the exorbitant education costs while the nation is still on the path to economic recovery.
According to the U.S Department of Education, the default rate of students who were liable to pay during the first three years, was at 14.7 percent that rose from 13.4 percent as recorded a year ago. Based on a comparative study of the facts, it has been found that default rates at the moment is at their highest level since 1995.
After learning about the fresh data from the DOE, former senior education policy adviser of Obama’s administration Zakiya Smith said she was alarmed by the figures. She confirmed that the increase in student loan default rates happened during a time period when both the ‘Income-Based Repayment’ as well as ‘Pay As You Earn’ debt relief programs were available to the student borrowers. This data, according to Smith shows how little people know about loan payments based on income.
The growing number of student loan defaulters shows their real pain of borrowing to pay for their colleges. According to the financial experts, the student population is unable to recover from such a financial setback and so, they are way behind in terms of economic improvement. It is a kind of a financial mayhem for these student loan borrowers.
More, defaulting on their loans will inevitably affect their credit worthiness and may render them ineligible to qualify for further credit, thus aggravating their financial hardship beyond anyone’s imagination.
Defaulters who are 207 days behind in their payments
These defaulters consists of graduates as well as people who’ve dropped out of their college mid-way through their course. They are 207 days behind in making the loan repayments consecutively. However, this rate doesn’t provide any data regarding those who’ve put off making the repayments like students undergoing a deferment period or are taking advantage of forbearance due to severe economic hardship.
Moreover, this data also excludes those struggling borrowers who are making the repayments under the federal debt relief program known as the Income-Based Repayment (IBR) plan. This implies that their hardship has been understated when deriving these default rates.
As per the latest statistics, student loan borrowers in the country now owe more than $1.2 trillion as their outstanding debt amount. This includes both federal as well as private student loan borrowers from organizations like SLM Corp (SLM), that is popularly known as Sallie Mae. This debt amount has easily surpassed all the other kind of consumer debts in the country, except for the mortgage debt.
According to Mark Kantrowitz, one of the leading student financial aid expert in the country and the publisher of Edvisors.com, the task to keep a tab on all the loans and the debt payments due every month can be prove to be quite tricky for the undiscerning students. However, he said that, they can minimize the confusion by having their student loans consolidated.
Still, Betsy Mayotte, director of compliance for American Student Assistance, a non-profit pro-consumer organization that assists student loan borrowers manage their college debt, says that it is never a good idea to consolidate private student loans with that of federal ones.
In the year 2012, the DOE had revisited the way it used to report about student loan defaults in the country after a demand for a better and more comprehensive measure was raised by the Congress. This is due to the fact that counseling provided by the educational institutions to their students ask them to defer in making the repayments with the motive to drive down the default rates in the country.
Savion Sage is a financial writer who writes mainly on personal finance topics like credit, debt and retirement.