Defaults on student loans have reached almost 5 million in Q3, which is double what the rate was 4 years ago. This according to a report in the Wall Street Journal and this number is approximately 13% of loans that are outstanding.
Even though there has been steady growth in the U.S. economy and recorded its fastest pace in 3 years as per Reuters, payments for federal student loans have dropped sharply, particularly among students who left school over the previous 3 years.
The Education Department stats indicate that almost 274,000 students have not made payments in the previous year and that was in Q3 alone.
The stats show a reversal over a 5 year period where new defaults were in decline. The Washington Post reported that students from 6,173 schools who started their student loan repayment in Oct. 2013, among the 5 million students, 580,671 reported defaults.
By the end of Q3, there was a total of $84 billion in defaulted student loans, according to the Journal and this represents approximately 13% of the expected $631 billion that has to be repaid.
As reported by CNBC, Rohit Chopra, a Consumer Federation of America senior fellow and Consumer Financial Protection Bureau, former student ombudsman stated that even with the stock market boom and a decline in unemployment, student loan borrowers are having a hard time repaying their loan.
He noted that students who have defaulted on their loans will find it more difficult to pass the employment verification check, saving money for retirement or purchasing a house.
Executive VP of Ameritech Financial Tom Knickerbocker said that there isn’t any good reason for a student to purposefully default on their federal student loans.
He stated in Markets Insider that to maintain their good financial future, borrowers should avoid defaulting at all cost.
Some people have called for consumer protection.
As per CNBC, Executive VP of the Institute for College Access and Success stated that the time for enhancing the policies of student loans and improving oversight and accountability is now.
However, the department is going in the opposite direction. Critical protection and enforcement rollbacks will ultimately result in an increase in defaults on student loans, increased debt burdens and wasting of taxpayer dollars.