More than 1 million borrowers defaulted on their student loans last year
Even as the economy continues to improve, student loan borrowers are still struggling to cope with their debts, a new analysis indicates.
Roughly 1.1. million borrowers entered default on their Direct Loans, a type of federal student loan, last year, about the same as the previous year, according to an analysis of publicly available government student loan data by Rohit Chopra, a senior fellow at the Consumer Federal of America, a network of more than 250 nonprofit consumer groups. Overall, there were 4.2 million borrowers in default in 2016, up 17% from 3.6 million the year before, as some borrowers exited default while others remained in the red.
The analysis likely underestimates the number of federal student loan borrowers in default as it doesn’t account for borrowers who are in default on types of federal student loans other than Direct Loans.
Even borrowers who aren’t in default, appear to be struggling, Chopra’s analysis indicates. The total amount owed by federal student loan borrowers has grown 16.5% since 2013 from $26,300 to $30,650. Though it’s hard to say exactly why that’s the case, it may be because even those borrowers who are current on their loans aren’t making payments high enough to cover the interest on their debt, allowing the balances to build.
“Despite a booming stock market and falling unemployment, student loan borrowers in today’s economy are still struggling,” said Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau, the Washington, D.C.-based government agency. “We should be seeing more improvements given the broader economic environment. This raises the question about whether things will truly get better in the absence of broader reform.”
The findings come as policy makers, higher education officials and student loan borrowers wait to learn how the Trump administration will approach the nation’s $1.3 trillion student loan challenge. The consequences of defaulting on a federal student loan are severe for borrowers: They can have their wages, Social Security checks and tax refunds garnished. The government garnished more than $160 million in wages over unpaid student debt in last quarter alone.