Last week we noted a survey from LendEDU which found that 31% of college co-eds spend at least some portion of their student loan debt proceeds to fund week-long hedonistic, binge drinking trips to Cancun and Daytona Beach for spring break. And, just to add insult to injury, 24% said they spend those taxpayer-subsidized loan dollars on drinking at school and 7% even splurge on drugs (see "31% Of College Students Spend Their Loans On Spring Break").
In light of those findings, it probably shouldn't be terribly surprising that, according to new data published by the U.S. Department of Education, $137 billion of federal student loans were in default as of December 2016, a 14% year-over-year increase. Key findings from the Consumer Federation of America:
Average amount owed is $30,650 per federal student loan borrower. Average amount owed per borrower continues to tick up, rising 17% since the end of 2013, when borrowers owed on average of $26,300.
$137 billion in default. For federal loans originated by financial institutions (FFEL) and the US Department of Education (Direct), a total of $137.4 billion in balances were in default, a 14% increase from 2015. This cumulative level of defaulted balances includes loans which defaulted in previous years. Defaulting on a federal student loan comes with severe consequences. Borrowers can face seizure of their tax refund, garnishment of their wages, and an inability to pass employment verification checks.
1 million Direct Loan defaults in 2016. In 2016, 1.1 million Federal Direct Loan borrowers defaulted. Federal law typically defines a federal student loan default as being 270 days past due. Borrowers defaulting for the first time slightly decreased compared to 2015, though borrowers re-defaulting slightly increased compared to 2015.
Data withheld for new defaults in bank-based student loan program. The Education Department did not release data on loans entering default in the bank-based FFEL program. The largest holder of these loans is Navient, with $87.7 billion in outstanding loans as of the end of 2016. “With more than 16 million Americans still on the hook for bank-based federal student loans, the cost of being kept in the dark is real,” said Chopra.
Total federal student loan portfolio increases $79.4 billion. Total outstanding federal student loans, including loans owned or guaranteed by the government, increased $79.4 billion in 2016, roughly the same as the $80.2 billion increase in 2015.
Ironically, these soaring defaults come despite Obama's executive actions setting up "income-driven repayment" (IDR) plans specifically intended to lower the burden on borrowers and avoid defaults. As the Wall Street Journal recently pointed out, Obama's so-called IDR plans set caps on borrowers' monthly student loan payments at 10% of discretionary income, which is defined as earnings above 150% of the poverty level. Then, whatever principal balance is left over on the loans at their maturity date is simply 'forgiven' (which is government speak for "repaid by taxpayers").
The report, to be released on Wednesday by the Government Accountability Office, shows the Obama administration’s main strategy for helping student-loan borrowers is proving far more costly than previously thought. The report also presents a scathing review of the Education Department’s accounting methods, which have understated the costs of its various debt-relief plans by tens of billions of dollars.
Senate Budget Committee Chairman Mike Enzi (R., Wyo.) ordered the report last year amid a sharp increase in enrollment in income-driven repayment plans, which the Obama administration has heavily promoted to help borrowers avoid default. The most generous version caps a borrower’s monthly payment at 10% of discretionary income, which is defined as any earnings above 150% of the poverty level.
That formula typically reduces monthly payments of borrowers by hundreds of dollars. Any remaining balance is then forgiven after 10 or 20 years, depending on whether the borrower works in the public or private sector.
Enrollment in the plans has more than tripled in the past three years to 5.3 million borrowers as of June, or 24% of all former students who borrowed directly from the government and are now required to be making payments. They collectively owe $355 billion.
While Congress originally approved the IDR plans in the 1990s and 2000s, Obama used executive actions, starting in 2010, to extend the most-generous terms to millions of borrowers which is precisely when loan volumes under the program started to skyrocket.
Congrats, taxpayers...you'll soon have the privilege of repaying $137 billion worth of debt spent by entitled millennials on binge-drinking trips Cancun and drugs...life, after all, is just a little bit better when we spread the wealth around....