Posted: February 24th, 2022
Student Loan Defaults Surge To Highest Level In Nearly 2 Decades
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Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting “crisis” levels of student debt and a lackluster economy that leaves graduates with bleak employment prospects.
One i n 10 recent borrowers defaulted on their federal student loans wi thi n the first two years, the highest default rate smce 1995, accord ing to ann ual figures made pu bl ic Monday by the Department of Education.
A separate gauge, measuring defaults occurring within the first three years of req u ired payments, showed that more than one i n seven borrowers wi th federa 1 student l oans went into defa ult, an event that can trigger invasive debt-col lection methods that include fees, wage ga rnishments, and withheld lRS tax refunds.
“The growi ng n um ber of students who have defaulted on thei r federal student loa ns is troubli ng,” Education Secreta1y Arne Duncan said. Duncan said the departmen t will work to “ensu re that studen t debt is affordable.”
As in previous years, for-profit colleges had higher default rates than any other sector of higher education. The industry, in the Education Department’s crosshairs since 2009, is braced for an onsla ught of renewed scrutiny as federal lawmakers and policymakers attempt to rei11in the amount of taxpayer-financed loans and grants going to schools wi th dubious track records.
The increasing default rate underscores the Obama adm inistration’s shoncomings in enrol ling distressed borrowers into governmen t programs that cap monthly payments based on borrowers’ incomes. Wh ile the two-year default rate has dou bled since 2005, m il lions of potentially eligible borrowers appear unaware of programs President Barack Obama has touted as a way to manage debt burdens and avert defa ul t
Roughly the same number of borrowers defaulted on their federal student loans last year as were aided by the Obama admin istration’s three debt-rel ief measures, known as Income-Based Repayment, lncome
Contingent Repayment and Pay As You Earn, according to Education Department data previously obtained by The I fuffi ngton Post.
Debbie Cochrane, research d irector at the Inst itute of College Access and Success, a student advocacy group, said that while the progra ms shouldn’t be expected to ave1t every default, many of the 600,000 borrowers who defau lted last year “should have been able to benefit from i ncome-driven repayment plans, but l ikely didn’t know about them or how to enrol l.”
“There’s just not enough borrowers who know about” the programs, said Rory O’Su l livan, pol icy d irector at You ng Invinci bles, an advocacy group representing peop le ages I 8 to 34.
The govern ment’s defau lt rate masks the true state of distress among A merican households because of the way the federal government defines defau l ts, officials and experts have said. While most banks and other lenders define defaul ts as l oans delinquent for at least 60 days, the Education Department waits 270 days –
– n ine months — before declaring a delinquent borrower in default.
“This is rea l lyjust the tip of the iceberg,” Coch rane said. “It doesn’t measure people who are able to stay on top of thei r loan payments, but are struggl ing with un manageable debt, and it doesn ‘t measure borrowers who are delinquent.”
Recent data from the Federal Reserve Bank of New York suggest the n umber of delinq uent borrowers is increasing. About $52 billion i n student loans that had been current became delinquent i n the first hal f of the year, the highest first-half total recorded since 2003.
With nearly 39 million borrowers carrying more than $1 tri llion of federal student debt, government concerns have been mounting over the potential of a slowdown in future economic growth. Borrowers who devote bigger shares of thei r incomes to repaying student debt reduce purchases of big-t icket items, such as cars and homes, investments in potential new small businesses, and savings for retirement.
1. Within the first three paragraphs there are two measures of the proportion of federal student loan defaulters. Rewrite and compare them in a sentence using percentages.
2. According to this article, there were how many borrowers who defaulted last year? ( ……….”)
3. Estimate the total number of federal student loan borrowers from the number who defaulted and the default rates given at the beginning of the article.
4. Use the last paragraph to estimate the federal l student debt per borrower.
5. Is your estimate in #4 a minimum or maximum? Explain.
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