Student loan garnishments and 889 billion in default

Don’t take our word on it, according to a Wall Street Journal Article by Josh Mitchell on April 7th 2016 over 43% of student loan borrowers don’t make full repayment on their student loans.   With 1.3 trillion currently owed in student loan debt that number has some serious meaning. 3.6 million borrowers are in default (12 month or more overdue) another 3 million are less than 12 months past due and another 3 million are in deferment or forbearance. This does not include a huge number of loans that legally have no repayment. At least 63 different programs can allow no repayment of a student loan such as an IBR (Income Based Repayment) and are excluded from the default figures. Over 50% of all loans are in an IBR and over 33% of all IBR loans have no repayment at all. Since loan payments are based on income if the borrower’s income is zero the payment is zero and after 20 years the loan is charged off. As of Jan 1 2016 4.6 million borrowers were in this IBR program.

Underperforming collectors

The powers of a student loan collector are unbelievable.  Without getting a judgment collectors can attach wages, bank accounts, tax refunds and even social security benefits.  According to the WSJ article Navient claims they contact a borrower 230 to 300 times within a year before the loan goes into default and a student loan becomes over 180 days past due. Navient is just one of 25 different collectors/servicers who bill the government for the collection efforts. They bill whether or not they collect.  They admit 90% of students never respond and over 50% never make a single payment. Taxpayers are billed for these services and most of the services are added back into the balance of the student loans.

Wage garnishments have been increased in order to get the loans out of default and push borrowers into IBR programs or repayment.  DOE has also created a behavioral science unit to discover what will promote people into compliance.  A large percentage of people have simply fallen off the radar and avoid repayment altogether.  Being in business for yourself will often allow a person the ability to avoid collections. Non payment for degrees earned by trade and for profit schools are especially a problem.

Many of these non-paying loans are decades old. The government can’t simply remove them from the books even though they are uncollectible. With a home mortgage the borrower worries about foreclosure but with a student loan there is no repossession or foreclosure. There are no credit checks for students to obtain the loans and there are no checks on the schools to make certain the students receive degrees that will help them repay the loans. For some schools and students, the checks are income that does not have to be repaid. Students don’t have to be prepared to benefit from the loans to obtain the loans and the schools don’t guarantee the student will benefit from the education.

Government student loan garnishments and criminal prosecution.

With low paying jobs or under performing wages there is no way for the borrower to repay. Often the trade and for profit schools simply provide a worthless degree. 176 million dollars were garnished last year from October through December 2015 alone and about 700 million being garnished for 2015. With these increases in garnishments the government hopes to collect nearly 1 billion in 2016. But this is less than half of 1 percent of what is in default.  How much is in default.  43% of 1.3 trillion or about 630 billion.  Even that figure is low because 35% of 57% of 1.3 trillion or another 259 billion are paying 0 in IBR loans.  Total loans not being repaid at all currently 889 billion out of 1300 billion.

One of the recent complaints was about how Latin and African Americans were being given misinformation to maximize the income collectors could make from these loans. It may be that the new units are employing other tactical misinformation as well to collect.  Attorneys know that the failure to appear in court may lead to the arrest of a debtor for contempt when the debtor is court ordered to appear.  Earlier this year stories were released titled as persons being jailed for the failure to repay student loans.  There is no crime for the failure to repay a student loan.  But there is an increased likelihood to collect if a debt collector threatens criminal prosecution  We have wondered if this was a part of the behavioral science unit.