Who’s to blame for the student loan debt crisis that has seen total loan balances surge to $1.3 trillion, more than total credit card debt, straining the pocketbooks of not only students but their families who have also taken on debt?
The Consumer Federation of America faults the loan servicers of direct federal loans, noting in a new analysis that “despite availability of income-driven repayment plans, we are still seeing a rise in defaults,” said Rohit Chopra, a senior fellow at the Consumer Federation.
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A Consumer Federation analysis of new data released by the U.S. Department of Education found a 17% increase in 2016 in the number of Americans in default on federal direct loans serviced by companies hired by the federal government, equal to 3,000 defaults each day, or 1.1 million people for the year.
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A new report from the Bipartisan Policy Center agrees that the student loan financing system is failing borrowers, taxpayers and the economy and that loan servicers are partly at fault, but it faults the availability of federal direct loans, which contributes to rising college costs, and “overborrowing” by students, supported by their colleges, who under the federal direct lending program now serve as the originators of federal student loans.
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The BPC report found that around 40 million Americans have at least one federal student loan outstanding, up from 28 million in 2007, and nearly 40% of recent undergraduate borrowers have made no progress repaying their loans. Twenty-one percent of federal student loan balances, or approximately $260 billion, is in deferment or forbearance, meaning their borrowers have suspended payment.
“The combination of rising debt levels and low repayment rates suggests that reliance on debt to finance higher education has reached unsustainable levels in the United States and could create long-term strains on the federal budget,” according to the BPC.
It faults federal loan programs and “soaring college prices,” for most of the increase in student loan debt, including income-driven repayment plans designed to help those struggling to pay down their debt.