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The Shame of Federal Student Loans

studentloansNot only are college students and graduates struggling under a $1.2 trillion (and growing) mountain of student debt, many of them may never be able to pay it back. A new study by the Consumer Financial Protection Bureau found that of the trillion dollars in outstanding federal student loans, only $493.7 billion were in repayment. Effectively, this means that fewer than half of all outstanding loans are being paid back.

Naturally, some of this is due to the fact that many of the students are still in college or in a grace period and so haven’t yet begun to repay their debts, but even still the numbers are alarming. Of the 50.7 million students who have taken out government loans, 9.9 million—about 20 percent—are in either default or forbearance. And as the Wall Street Journal notes, when you break the loans down by loan type, the numbers look even worse. Prior to 2010, most loans were guaranteed through the Federal Family Education Loan (FFEL) program. In 2010, however, the Obama Administration ceased administering new loans under this program, replacing it with direct loans under the Federal Direct Loan Program. The numbers for this new program are particularly depressing:

The report indicates that a significant number of borrowers in the new program are unable to repay. Excluding borrowers who don’t yet have to make payments because they are still in school or within the grace period, more than a fifth—about 22%—are in default or forbearance, a program that allows borrowers to postpone payments for a period, typically for financial reasons.

The Journal goes on to argue that by burdening an entire generation with massive debts that can’t be discharged in bankruptcy, these loan programs are making it harder for people to invest in important items like houses and cars, hurting the economy in the process. This is a key point to keep in mind when looking at data on student loans, and it’s one we’ve covered in depth on this blog as well. Furthermore, by making it easier for more students to borrow exorbitantly to pay for college, these programs reduce the incentives for colleges to keep prices under control.

[Ball and chain image courtesy of Shutterstock]

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  • bpuharic

    Seems to be a pattern here. The US is becoming a company store

    Young people saddled with huge debt

    Middle class wage earners going decade after decade with stagnant wages

    Half of all middle class people have no 401k’s, and the average value of those for wage earners 55-64 is less than 100K

    The middle class is becoming the new feudal class.

  • Nick M.

    Anyone else see a slight bit of irony of this post *right* after a post soliciting for unpaid intern positions which require applicants to be graduates (rather than those currently enrolled), or is it just me?

    • crocodilechuck

      No, its not just you.

      Irony stands mute.

    • Jane the Actuary

      And was it just coincidence that I couldn’t get the comment form to load for the intern-soliciting post, or were comments disabled, so that we readers can’t directly criticize the offering of unpaid internship positions? There seem to be periodic court cases which, I hope, taken together will eventually kill the concept of the unpaid internship, especially in cases such as this, when the intern could be paid as a stringer/freelancer for their contributions rather than at an hourly rate, so it wouldn’t be an all-or-nothing deal.

  • Doug

    Direct result of the exorbitant cost of college

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