A growing number of people are defaulting on their student loans, a “troubling” trend that leaves borrowers facing wage garnishment, late fees, additional interest, court costs, collection and attorney’s fees and the demise of their credit scores.
More than 600,000 former college students — including 29,500 Ohioans — defaulted on the federal loans they were supposed to begin repaying in 2010, according to new data from the U.S. Department of Education. In total, more than 7 million borrowers are currently in default on a federal or private student loan, meaning they missed payment for nine months, according to the Consumer Financial Protection Bureau.
“The consequences of default are so severe,” said Lauren Asher, president of nonprofit The Institute for College Access and Success.
“The debt can follow borrowers for the rest of their lives, ruining their credit, making it difficult to buy a car or rent an apartment, limiting their job prospects, and making it impossible to get federal grants or loans to return to school,” she said. “Defaulted borrowers may also face garnished wages, seized income tax refunds and diminished Social Security checks.”
‘Never going away’
Ohio’s three-year default rate jumped to 16.2 percent from 13.2 percent in the recent data, ranking the state among the 10 worst in the country.
Ohioans graduate with an average $28,683 in loans, according to the Project on Student Debt. But for those who do not find work after college, such as Ronnie Battson, that debt can quickly balloon with fees and interest when they default.
Battson, 57, said he now owes $60,000 for the $24,000 loan he took out to fund his computer networking degree from ITT Technical Institute in 2001. The Dayton resident said he was attracted by the commercials promoting people who found good-paying jobs after graduating. However, he was never hired in his field, and makes minimum wage as a security guard with little hope his now-outdated degree will lead to anything.
“I’ve put applications out and nothing has come back, so I’m stuck. It just keeps getting higher on me,” he said of the loan. “It gets really discouraging.”
“I thought about bankruptcy, but I don’t even know if that’s my option,” he said.
Bankruptcy is not an option, according to U.S. Sen. Elizabeth Warren, D-Mass. She has proposed that bankruptcy protections be restored for student debt, that graduates be given the ability to refinance their debt to take advantage of historically low interest rates and that, in the future, loans be made at no profit to the government. She said also colleges with high default rates should face financial penalties to “feel the impact of their failure to prepare students for economic realities.” But for now, none of those ideas are reality.
“The debt, it kills. It kills hope. It kills opportunity,” Warren said.
People in default are not eligible for the programs meant to help those struggling under student debt. Those programs include income-based repayment for federal loans, which reduces eligible borrowers’ monthly payments based on income and forgives the balance of loans after up to 25 years.
“What’s crucial is that borrowers not put their head in the stand. They need to reach out,” said Asher, who recommended they go online to StudentLoanBorrowerAssistance.org for more information.
Wendy Crawford is on a 12-month plan to get out of default. But she said she has no hope she will ever repay her debt, which has ballooned to $158,000 since she graduated with her bachelor’s degree and master’s in business administration from the University of Texas at San Antonio in 1994.
She and her husband both lost their jobs shortly after her graduation. She now works two jobs for the federal government and at Crafters Lodge in Sugarcreek Twp. to make the payments that will get her out of default. But with a $30,000 income to support her family of three, she said she doesn’t know where else in her budget she can cut. Her debt even keeps her from being promoted to a higher security clearance and a promotion, she said.
“I’m 48. I owe more than a mansion,” she said. “I’ll never have a house. It’s a good thing my child doesn’t want to go to college because I’d have no way to pay for him. I’m never going to get out from under this thing. Short of winning the lottery, it’s never going away.”
Consequences of default
Next year, the government will begin issuing sanctions on schools whose borrowing and three-year default rates are high, including the loss of eligibility for federal grants and loans.
The issue will likely affect many for-profit colleges, who account for 13 percent of students nationwide but 46 percent of those who defaulted, according The Institute for College Access and Success.
Schools whose rate exceeded 30 percent were required to submit a corrective action plan, and locally that included the Lincoln College of Technology and Central State University. The Department of Education declined to provide copies of those plans “as not to compromise the integrity of the school’s strategy to address the matter.”
The Dayton Lincoln campus is scheduled to close in December, and a representative did not return a request for information. Central State, a public historically black university, did share its plan, which includes among many initiatives hiring an organization, called SALT, to help students and alumni make informed decisions about their loans at no cost to them.
Since the plan was submitted, Central State’s default rate improved to 31.2 percent from 32.8 percent.
“We have unique challenges probably because we have a lot of students from disadvantaged backgrounds,” said Sonia Slomba, CSU’s financial aid director, adding the rate is also affected by the campus’ small size at about 2,000 students.
Slomba said CSU has been working on default prevention for four years by teaching students financial literacy, even before they enter classes.
“We tell them how much this cost, that this is a big investment, and I think that’s making a big difference,” she said. “We’re addressing this in a very, I would say, aggressive manner because we want our students to be successful and paying back their loans is part of that.”
The U.S. Department of Education offers the following advice for borrowers who are in default:
- Contact the agency that is billing you.
- Explain your situation fully.
- Ask them what options are available to get out of default.
- Ask them to work with you.
- Always stay in touch with your lender, loan servicer or collection agency.
For more information, visit StudentLoanBorrowerAssistance.org
Our higher education reporter recently attended the Education Writers Association conference in Boston to learn more about issues affecting college students and graduates, including student loan defaults.