Despite new avenues for income based repayment plans, many borrowers are still unable to pay off their student loan debt.
In a matter of just three months, private debt collection agencies hired by the Department of Education have garnished wages totaling more than $176 million from defaulted loans. This took place last year between October 1 and December 31. An increasing amount of borrowers are unable to pay back their student loan debt, despite recent efforts by the Obama administration and various options for income based repayment plans. The numbers say it all: working class people simply cannot afford college.
If a borrower defaults on their student loans, the government has the power to garnish wages to compensate for debt. Most of this money is generating from rehabilitation. Rehabilitation is a process that gives borrowers the option to “catch up” on student loans if the borrower makes continuous payments on time. The issue with this is that the borrower who has their wages garnished already cannot afford to pay off their loans, so having their income stripped away from them puts them in an even tighter financial corner.
For the first time in three years, the total amount of borrowers in default has reached an all time high. This translates to over 336,000 borrowers that have entered default in the last year. What’s even more concerning about these numbers is that many of these borrowers have defaulted more than once. Although the Obama administration has implemented programs that have made it easier for borrowers to repay their student loans, there are still an increasing amount of people falling into default.
Income based repayment plans have become increasingly desirable among graduates in student loan debt. From last year, there has been a 48% increase in enrollment for these plans. Now, almost 4.6 million borrowers use income based repayment plans because it is what is most affordable to them. But why are there still so many borrowers that are having their loans placed into default?
There are no simple answers to the reason why thousands of Americans are defaulting. Each year, tuition prices keep rising, making the pickings slim for federal student loans and grants. Along with this, borrowers aren’t getting enough help from servicers. Servicers are not giving out enough information to their clients who are trying to pay back their student loans. As a result, they end up not having a proper payment plan and fall into default.
In light of mass increase of student loan default, the Consumer Financial Protection Bureau and the Treasury Department have teamed up and signed a joint statement which will hold service companies accountable for providing clear information to clients.
Options are available to help
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