Student Loan Defaults Worse Than We Thought

According to a post by Kevin Carey, New York Times, reports that the Education Department released new data suggesting that the student loan system is failing and that, the loan crisis hits hardest at colleges enrolling large numbers of students from low-income backgrounds. Students are not able to find well-paying jobs that allow them to repay the loans, assuming they even graduate.
Recent research finding that student loan defaults are heavily concentrated among the most economically marginalized students, the new data suggests that debt is a major financial obstacle for people who already face barriers to opportunity.
Some of the numbers are startling. American National University — a for-profit chain offering degrees in business, health care and information technology, both online and at 30 campuses in six Midwestern states — has an official default rate of 8.5 percent, well below the national average of 11.8 percent. But its five-year nonrepayment rate is 71 percent. Even after seven years, most of the university’s students, the large majority of whom borrow, have failed to pay back a penny of their loans.
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Note from Diane: How is this nightmare possible? Colleges learned how to beat the default reporting system which is supposed to hold them accountable.  They offer deferments and other short term programs that will allow the default rate to appear lower than it really is.  Meanwhile these colleges continue to pull more and more students in with the promise of “free money” for their education.  Originally this greed was relegated to for-profit schools, but the reports now show the non-profit (tax payer supported) schools are on the same gravy train.
What are the consequences to the borrowers?  Many are faced with a financial burden they can never hope to pay off.  Others are taught that you can borrow money and don’t need to pay it back.  Still others are just looking for a free ride.  Have we become a society that promotes free loaders?  I hope not, but wonder where this will stop.  I also wonder why a problem has to become so widespread before anyone does something about it (e.g. the mortgage loan crisis).  Sometimes the solution is more disastrous than the problem it was designed to solve.

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