Banking, finance, and taxes
More Than 1 Million New Defaulted Student Loans in 2016
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At the end of last year, some 42.4 million Americans owed $1.3 trillion in federal direct student loans. The total number of defaulted federal direct loans rose by 1.1 million, according to U.S. Department of Education data reported earlier this month by the Consumer Federation of America.
More than $137 billion (about 9.8%) of a total of $1.4 trillion in loan balances from both the federal direct loans and federal loans made by financial institutions are currently in default, which the federal government defines as being 270 days past due.
The average amount owed has risen from $26,300 at the end of 2013 to $30,650 at the end of last year. That’s an increase of 17%, far higher than the inflation rate over the same period.
Rohit Chopra, senior fellow at the Consumer Federation of America and former student loan ombudsman at the federal Consumer Financial Protection Bureau (CFPB), said:
3,000 preventable student loan defaults each day in America is 3,000 too many. Our broken system works well for the student loan industry but is failing borrowers, taxpayers, and our economy.
The total federal student loan portfolio rose by $79.4 billion in 2016, roughly flat with an $80.2 billion increase in 2015.
Defaulting on a federal student loan threatens severe consequences. Borrowers face seizure of their tax refund, garnishment of their wages and an inability to pass employment verification checks.
Also earlier this month, the Department of Education rescinded previous rules that prevented financial institutions from charging collection fees to defaulted student loan borrowers. The federal government does not charge direct loan borrowers for collection costs.
Chopra also commented on this action:
The Administration’s first move on the student loan default crisis will do nothing to stop the tidal wave of defaults that is sweeping across the nation. With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.
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