Tags: student | loans | default | bureau

Student Borrowers Struggle to Repay Loans

Tuesday, 06 Aug 2013 02:22 PM

By Courtney Coren

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Only 40 percent of federal student loan borrowers are currently paying back their loans, a new report reveals.

The first comprehensive look at the student loan program that began in 2010 shows that 22 percent of borrowers in the program are in default or forbearance — which is typically used if a borrower is having to postpone payment for financial reasons.

According to the report released by the Consumer Financial Protection Bureau, about 35 percent are not paying back their loans because they are either still in school or in the six month grace period before payments are required to begin. Another 18 percent are either in loan programs for distressed borrowers or have gone back to school.

"A noteworthy number of borrowers are in default," said Rohit Chopra, the bureau's student loan ombudsman. "Defaulting on a federal student loan has serious consequences. Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order."

More than $569.2 billion is currently outstanding in the direct student-loan program that has been in existence for three years after the government stopped offering a guarantee on loans made by private lenders.

The loan program grew rapidly and was widely used as a large number of Americans entered school due to the weak job market at the time.

Combined with the old federal Family Education Loan program, in which the government guaranteed loans made by private lenders, total federal student-loan balance is now more than $1 trillion, the bureau estimates.

If defaults grow, economists warn that the earnings the government currently makes on those loans could diminish, if not vanish altogether in coming years.

The Wall Street Journal said the Obama administration has allowed more student loan borrowers to postpone payments and the bureau estimates that one in three federal borrowers have taken advantage of a scheme to base the amount they pay back monthly on their incomes.

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