When you think about America’s student loan crisis, it helps to break the issue into two halves. First, you have the the sheer amount of debt students are piling on. This part of the problem is familiar. It tends to get exaggerated a bit, but in the end, there are millions of former students out there struggling under the weight of loans that, 15 or 20 years ago, they would not have needed to borrow in order to make it through college.
The second half of the crisis earns less attention, but is in some ways equally important. It’s our broken system for helping students manage their debt. With all of the repayment plans available to borrowers, some of which cap monthly payments based on income, it should theoretically be near impossible to default on a federal student loan. And yet it happens constantly. Among former students who started paying back their loans in 2009, 13 percent had defaulted within 3 years. A disturbing number of students are falling through the cracks.
This week, the Consumer Financial Protection Bureau released a new report that illustrates just how severe that systemic failure really is (all tables below are courtesy of the CFPB). The big, headline grabbing number from it is that almost one third of all federal borrowers have either defaulted on their debt, or are in deferment or forbearance, meaning they’re likely in such bad financial shape that they’ve been given a temporary break on paying back their loans.
Repayment Status Among Federal Student Loan Borrowers*
Those deferment and forbearance numbers are worrisome, but there’s a faint silver lining to them. These borrowers might not be paying back their debts, but they have figured out how not to drown in them.
There’s no silver lining, though, to the 12.8 percent overall default rate. Those are the people whom the system has failed completely. There’s no strategic reason for a borrower to default on their student loans, since it’s virtually impossible to discharge them in bankruptcy. It’s just a sign that something has gone wrong.
And what’s going wrong seems pretty clear: The students at risk of defaulting aren’t taking advantage of the programs meant to help them.
Student Loan Relief can help you understand the new programs and get you out of default. Contact us today at 1-888-921-4487 for a free consultation.