43% Of Federal Student Loans Are Not Being Repaid

Many Loans May Never Be Repaid

43% Of Federal Student Loans Are Not Being Repaid
June 3, 2016

Do you have outstanding debt from a federal student loan? If so, the chances are significant that you are behind on your payments or have not even tried to make any payments at all. As of the beginning of the year, there were approximately 22 million Americans with student loans — and, according to information from the Department of Education, only 12.5 million of them are current with their loan payments.

Around 3 million student loan holders are in some form of postponement on their debt. Through a deferment or forbearance, they have permission to delay their loan payments due to a hardship such as unemployment or other financial emergency. Approximately $110 billion in student loan balances are in some form of postponement.

Another 3 million more student loan borrowers were delinquent, meaning they were between one month and a year behind on their loans. 3.6 million borrowers are at least a year behind on their payments and are considered to be in default. Government officials are concerned that many of the borrowers in default do not intend ever to attempt to pay back their student loans.

The combined balance in delinquent and defaulted loans is approximately $122 billion, meaning that around $232 billion of the over $1.2 trillion student loan portfolio is in some form of distress. Other types of loans with traditional banks would not tolerate such a ratio — but what bank would loan money without credit checks, cosigners, or any evidence that the loan will ever be paid back? Essentially, that's how student loans work. The government also has no collateral; they cannot repossess your education (yet).

There is at least some silver lining, as a 43% non-repayment rate represents an improvement over last year's rate of 46%. The Wall Street Journal attributes much of the change to programs that allow some borrowers to lower their student loan payments by connecting them to a percentage of the borrower's income (also known as income-driven repayment). The number of borrowers taking advantage of these programs nearly doubled over the past year to 4.6 million.

Fortune notes that the Department of Education has blogged that those who do not pay back federal student loans will not be arrested, but they will suffer problems in their financial future and will certainly have difficulties establishing good credit. Unfortunately, evidence shows that some borrowers may not care. The attitude may be that the government will eventually write off these loans or that the potential punishments are not worth a repayment effort compared to other priorities.

Data from student loan servicer, Navient Corp. shows that the average attempts to reach borrowers in delinquency are between 230 and 300, or more than once every other day. Regardless of format — calls, letters, text messages, and e-mails — 90% never respond. Over half never even attempt to make a payment prior to default.

Income-driven repayment is the preferred compromise path that allows repayment without punishing those who legitimately cannot find work and afford repayment. There are four such programs offered through the Federal Student Aid website: REPAYE, PAYE, IBR, and ICR. If you find yourself among the 43%, consider income-driven repayment plans as a way to repay your debt without overburdening your budget.

If you are among those who are simply ignoring your obligation to repay, don't. Just because you may never be jailed because of default does not mean that there are not consequences — and do not expect the government to bail you out. Even if the rules are changed, they may not be retroactive. Do the responsible thing and set up a program to pay as you can.

Find out quickly at what rate you can refinance your student loan.


Photo ©iStock.com/mj0007

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Carla Truett | 06.03.16 @ 20:02
These numbers are shocking to say the least. It is sad that education is so expensive to start with. We need more jobs created so some of this debt can be repaid.
brittany.martinez530 | 06.03.16 @ 20:05
This doesn't really surprise me, especially as a student. It's hard to get through college, especially without debt, so when we have to take out student loans, its going to take some time to be able to start paying it back.
Steffanie | 06.03.16 @ 20:07
I have a hard time with those debts not being paid. Then again, the price of schooling is ridiculous!
Kyle | 06.03.16 @ 20:07
This really doesn't surprise me in the slightest considering the number of college students who have to take out a loan just to be able to attend to begin with.
Jane | 06.03.16 @ 20:09
I have a niece who is $80,000 in debt from student loans. Even with help from restructuring the payment, she would never qualify to purchase a home. I don't think it is right for loans for such high amounts to be given to students, unless they're told at the start how much they'll need to pay each month for their loans. She scrimps and saves, not getting ahead, and not able to get a job in the field she received her masters degree in, a field that stopped hiring when the recession hit..
Irene | 06.03.16 @ 20:10
Wow that is a much higher percentage than I would have expected
Crystal | 06.03.16 @ 20:21
These statistics do not surprise. me. We need schools to charge a little less and jobs to pay a lot more.
Wanda Langley | 06.03.16 @ 20:23
I know several who are having Issues finding Jobs since they finished College, They are all worried about these Loans.
Chung Fu | 06.05.16 @ 21:06
i hate the tone of the author. Most people, if not all should default on their loans as soon as they can. It will stay on your credit for seven years, so in your early 30's you shouldn't have an issue. It is likely that these will be cancelled by politicians but either way i would urge people not to pay. The more defaults the more likely we will see some type of reform on predatory lending to ignorant morons that go to trade schools and second rate for-profit schools and gain nothing for the 100's of thousand they spend to attend these schools.
nancy | 06.06.16 @ 16:53
Just to be Clear, you cannot default from Student loans nor will they ever be erased from your credit report, do Not default!
Gojaysgo9293 | 06.15.16 @ 22:24
Actually the numbers cited here are way low 44 million Americans with student loans and 28 million (66%) are in default, forebearance or deliquent
Mary | 06.15.16 @ 23:40
There are so many options to repay the loans. It's overwhelming, but there no excuse not to try. In Texas, if you default, you can lose your professional license. It's worth it to work with them and start paying the loans off.
mickey | 07.15.16 @ 16:39
22 million with student loans. No wonder Hillary is going after them for votes.
$commenter.renderDisplayableName() | 12.10.16 @ 07:28
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