The Department of Education released
Wednesday that the default rate on student loans has dropped to
13.7%. This is slightly better than
14.7% in 2012, although the data shows that 650,000 borrowers who
started paying on their debt in 2011 had already entered default by
2013. The editorial board of The New York Times wrote on October 2, (Original Article) that it believes that the
government needs to pressure schools and loan companies to educate
students to at least pay their minimum payments in order to reduce
the default rate. Going into default for students loans is just as
bad as defaulting on a credit card. It can affect your credit score
which then affects the borrower's ability
to get jobs, apartments, loans, or grants to continue going to
school. Even worse, the borrower could have his wages garnished or
his income tax withheld.
Currently, schools are urged to keep
their student's default rate under
30%.
If they cannot do so for three years then the school will lose their
eligibility for the federal loan program and the Pell Grant
program. Schools who lose these types of programs may have to shut
down. The schools with the highest default rates
have been and are still for-profit schools. Some even
have such high rates that they are at risk of
losing government aid. Schools in the past have tried to tilt the
scale by pooling data across multiple campuses or pushing
students into repayment plans that don't actually reduce the total
amount due.
The Federal Government needs to step in
and regulate the amount which students
are paying on their debt. There needs to be a system where the
minimum payments correlate with the borrower’s income. This will
help students survive financially without having to default on their
loans.
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