I am shocked I tell you. Just shocked. Who could have seen this coming?
Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”.
Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments. Zero.
But since it is an election year, Obama will make some type of populist executive order wiping debt to make sure the democrats get elected.
from Mike “Mish” Shedlock:
The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.
The Wall Street Journal reports:
More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.
While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.
About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.
Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.
Navient Corp. , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.
Crisis Easy to Explain
Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.
I could easily come up with numerous reasons off the top of my head.
♦ Being in the workforce and having a job are two different things.
♦ Having a job and making enough money to pay back hundreds of thousands of dollars is yet another thing.
♦ Some feel cheated by the system, as well they should. Higher education is becomming the scam of the century.
♦ Many have figured out the consequences of default are small. The worst that can happen is wage garnishment. Should that happen, one can always find another low-paying job, buying time until they are discovered again.
♦ Some never intended to pay back the loans in the first place. To those borrowers, it’s all free money for a few years. They will stay in school as long as they can. If by some miracle they actually graduate (or are kicked out), they never make a payment.
The Bankruptcy Abuse Prevention and Consumer Protection Act enacted April 20, 2005 made it much more difficult to discharge debts in bankruptcy.
Only the government would come up with a program that protects the government over consumers and name it the “Consumer Protection Act.”
Among other things, “BAPCPA amended the law to broaden the types of educational (“student”) loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender became irrelevant. Even loans from “for-profit” or “non-governmental” entities are not dis-chargeable.
In the wake of that act (albeit with a bit of a delay), we saw massive amounts of seemingly reckless lending to students. Because of government guarantees, lenders did not give a flip who they lent to.
For profit universities flourished. Abuses at the University of Phoenix became rampant. And because of various lending programs that followed, education costs soared as well.
But those debts cannot be paid back, and household formation has gone into reverse. Students moved back home after graduation, and attitudes on debt have changed.
Modest Fee Request
The Department of Education will no doubt waste millions of taxpayer dollars studying this issue, only to come up with the wrong answers again because students will lie and results will be “interpreted.”
Will anyone realistically admit “I never intended to pay back these loans”?
My modest fee for this analysis is a mere $250,000. Of that amount, I pledge $249,999.99 to the Khan Academy.
All I ask is a penny for my thoughts, saving taxpayers countless millions in useless department of education studies.
For more on the Khan Academy please see Teaching Revolution: Online, Accredited, Free; Start Learning Now!
President Obama does not escape criticism for his efforts to fuel the problem.
Here’s my blast at Obama: For Profit Schools Turn Students Into Debt Zombies; It’s Time To Kill The Entire Pell Grant Program.
Let’s see. You beat it into the kids for 18 years they need to go to college to get a good job or they will be a total failure in life, then give them essentially no doc loans with no payments for 4-6 years, then expect them to pay the loan off on a McDonalds income. And that assumes they actually graduate. Sure, makes sense to me.
Then instead of seeing the stupidity of the entire system, spend even more money on another study. Brilliant.