Thanks to the ever-growing tuition and unemployment rates, U.S. college graduates have defaulted on almost $1 billion in federal student loans earmarked for the poor, leaving even elite schools like Yale with no choice but to sue former students.
Court records show that Yale, Penn, and George Washington University have all filed suit against former students over nonpayment, according to Bloomberg
Government data indicates that students defaulted on $964 million in Perkins loans in the year that ended in June 2011, 20 percent more than five years earlier. While the federal government is in charge of distributing and collecting most loans, Perkins loans are handled by the individual colleges, with repayments being recycled and given to other students.
"If you borrow to go to school, it may not be just the government that ends up coming after you if you can't pay," Deanne Loonin, an attorney with the National Consumer Law Center, a nonprofit advocacy group in Boston, told Bloomberg. "We offer credit very easily. If the student doesn’t benefit financially from the education, the government or the school comes after them very aggressively."
Some borrowers assign a lower priority to Perkins loans, Nancy Coolidge, associate director of student financial support for the University of California, told Bloomberg. They may choose to repay a private loan first because they can carry much higher interest rates.
An item on President Barack Obama's education agenda this term is to increase Perkins loan funding, upping the pot to $8.5 billion from about $1 billion, and putting the Education Department in charge of collecting repayment, not colleges, according to Bloomberg.
A record number of borrowers are also asking for relief from loans, according to credit reporting company Transunion, which found that 51 percent of all student loan accounts in the U.S. are "deferred," allowing borrowers to postpone making payments, sometimes for up to three years.
It's not just Perkins loans that recent grads struggle with. More federal student loans are also becoming delinquent. As of last March, more than one in 10 federal student loans were more than 90 days past due
, according to the Transunion study.
Overall outstanding education debt has swelled to $1 trillion in the U.S., more than what Americans owe on their credit cards, Bloomberg said.
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