Bernie: Is College already free?

More Than 40% of Student Borrowers Aren’t Making Payments

New figure raises worries that millions of them may never repay more than $200 billion owed

WSJ (Josh Mitchell _
Updated April 6, 2016 6:34 p.m. ET
More Than 40% of Student Borrowers Aren

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.

The new figures represent the fallout of a decade long borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools.

While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.



About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.

Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.

The situation improved slightly from a year earlier, when the nonpayment rate was 46%, but that progress largely reflected a surge in those entering a program for distressed borrowers to lower their payments. Enrollment in those plans, which slash monthly bills by tying them to a small percentage of a borrower’s income, jumped 48% over the year to 4.6 million borrowers as of Jan. 1.

Advocacy groups, some members of Congress and the federal Consumer Financial Protection Bureau fault loan servicers—companies the government hires to collect debt—for not doing enough to reach troubled borrowers to offer such payment options.
“The servicers aren’t quite promoting them in the way they should be—I think some of it’s information failure,” said Rachel Goodman, a staff attorney at the American Civil Liberties Union.

But the picture seems more complicated.

Navient Corp. , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.

The Obama administration—worried about taxpayer costs and the prospect of consumers damaging their credit by defaulting—has stepped up efforts to reach borrowers and offer the income-based repayment plans. In some cases, the government is garnishing wages and tax refunds of borrowers who refuse to pay.

Education Department officials note that some defaulted loans are from prior decades and, unlike private lenders, the government is severely limited in its ability to write them off and remove them from the books. They also point out that the growth in defaults and delinquencies slowed last year, suggesting progress in the administration’s efforts to get borrowers current.

But the officials acknowledge that a large pool of borrowers have essentially fallen off the radar. The Education Department has assembled a “behavioral sciences unit” to study the psychology of borrowers and why they don’t repay.

“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary. He said many defaulted borrowers dropped out of school and are underemployed.

Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.

Some borrowers aren’t repaying even when they can. Research from Navient shows that borrowers prioritize other bills—such as car loans, mortgages and heating bills—over student debt. A borrower who fails to pay down an auto loan might have her car repossessed; with student loans, there is no such threat.

Kristopher Mathews, 38 years old, is in deferment on about $11,900 in federal student loans. During the recession he earned a certificate at a Michigan-based for-profit college that teaches media arts, but he wasn’t able to find the well-paying job in radio that he hoped for.

Mr. Mathews now works as a logistical analyst for an auto company, making $46,000 a year. He says he devotes his income to caring for his family—he and his fiancée have three children—and paying off two credit cards and a car loan. “With all the other necessities in life I just don’t have” funds to pay student debt, he said.

Once his deferment expires, he isn’t sure if he will feel obliged to pay down his loan. “They promised me everything,” he said of his for-profit college. “And I honestly have nothing to show for it except a piece of paper that doesn’t really do me any good.”
Most borrowers who have defaulted owe relatively little—a median $8,900, according to the Education Department.

The administration maintains that the student-loan program, as a whole, will generate a profit over the long term, but the risk is rising that its revenue won’t meet the administration’s projections.

Even many borrowers who are current on their loans are paying very little. More than a third of borrowers on an income-based repayment plan had monthly payments of zero because their incomes were so low, according to a Navient survey last year.

The Education Department, through private debt-collection agencies, garnished $176 million in Americans’ wages in the final three months of last year for student debt, federal data show.

The administration’s pursuit of troubled borrowers is drawing criticism from student advocates and their allies in Congress. Last week, the American Civil Liberties Union and the National Consumer Law Center sued the Education Department, accusing it of blocking public access to data on the agency’s debt-collection efforts. The groups suggested that the companies collecting debt for the department might be discriminating against black and Hispanic borrowers.

Dorie Nolt, a spokeswoman for Education Secretary John B. King Jr., said the agency is reviewing the groups’ public-information requests.

“The singular goal of our student loan program is to help all students get a degree that sets them up for success, and we take the treatment of our borrowers—particularly historically underserved students—very seriously,” Ms. Nolt said in an email.

 

I highly doubt anything was "promised" to him with his certificate. I've heard the pitches that these schools make. There are definitely bad operators out there. But CTU never made any statements to me about how much money I was likely to get or even how likely it was that I would find a job.

Scranton, however, had a slideshow my Freshman year where they showed us what all of their graduates went on to do, by major, from the last five years. When it came to psych, one person made it into the PsyD program at Marywood University. Two went into doctoral programs at other schools. I recall there were a handful that went into the M.S. in Counseling program at Scranton. The rest were scattered over jobs ranging from low level mental health work to secretarial and call center work. The most prominently featured employer from the list was J.C. Penney. Which might sound odd but it was likely because they operated (and possibly still do) a large call center just outside of Scranton.

That didn't stop the student advisor from gushing over some of the "incredible" job titles like "Customer Analyst," "Substance Abuse Counselor" and "Account Executive" to highlight what success we would surely find upon graduation.

This isn't kindergarten. Entering into contracts has consequences. You would be wise to understand the terms before you enter into them. This guy has a job. And it pays fairly well in a job market that isn't exactly thriving (Michigan).

Honestly? I hope they garnish the crap out of him.

 

It sounds like Scranton was being honest and detailed. A lot of schools tell you which companies graduates have worked for, but do not mention job titles. It also sounds like Scranton graduates are doing well relevant to the expectations of someone with a bachelor's in psychology. There is no telling how many of those call center and substance abuse counselor jobs required a bachelor's degree. My sister works for an insurance company in a call center; her job requires a 4-year degree. It is pretty common for insurance companies to require a generic bachelor's for call center positions. The pay isn't bad at her company, and the benefits are excellent. When I was going through substance abuse counselor openings in my area, while Texas only requires an associate's degree to become licensed, a lot of the openings required a bachelor's degree.

As for Mr. Mathews, with that salary in Michigan, he can pay something on that relatively small loan if his fiancee is also working. If he's struggling that much, then he should stop having kids.

 

I understand your point and, in a general sense, I think you're right. In this specific instance, however, I can assure you that the call center in question did not require a bachelor's and I don't recall there being an incentive there for having one. It was just a place that paid OK money and had been around for a while. Now, several other call centers sprung up around that one, I have no idea how that plays into it all.

Its hard to say whether the university was shooting for transparency. It wasn't a university initiative. It was just a presentation that one particular advisor threw together because she was teaching freshman seminar, a one credit course where you learned how to read a syllabus. She took the course and transformed it instead into "what I want to be when I grow up." Props to her, she got some people thinking beyond their four years. One classmate, for example, was majoring in psych because he was under the very mistaken impression that if he then continued on to medical school he could skip his residency and be a psychiatrist by virtue of his psych undergrad degree. Knocking that nonsense out of his head in his first semester of college was probably a good idea.

But in her zeal she also oversold a lot of those jobs. The one that always stuck in my mind were the one or two people who became "account executives" that she gushed over by saying how thrilling it was that former psych majors were working as "executives" so soon after graduation. I suspect it was more of a case of ignorance than intentional deceit.

Now, I opted against Kings College (which was only five minutes from where I was living) because their admissions pitch proudly proclaimed that the average starting salary for graduates of their business program was $46k but they refused to disclose where these graduates were working or in what capacity. I would later learn that many of them took one year term jobs at the college for roughly that same pay. They also made the assertion that their psych grads had a 95% placement rate in grad programs. That sounded fishy. I would later learn that they didn't count any double-majors (the bulk of their psych majors were double majors). They also ONLY counted graduates of their B.S. In Psych and none of the graduates of their B.A. in Psych. Intentional deception? I'm not going to make that claim. I have no idea what their intention was or is. I just know that if it had been Everest saying the exact same thing and had I enrolled I would have likely received some loan forgiveness.

But this gentleman is making $46k and the language used strongly suggests that he was offered radio work just not at the salary level he would have preferred. But I take the most issue with his simply "not feeling responsible for the debt." He took out the debt. He should pay the debt. The Everest debacle is going to set off a chain where now even the successful grads of for-profit schools might just see a way to avoid their loans.

Perhaps it is a shame that I paid mine off like a responsible adult.

 

I agree with Neuhaus. A student loan is like any other loan in that one receives a designated amount of money and makes a commitment to repay the loan according to the terms of the contract. I went the student loan route for my one of my degree programs, completed the program, then repaid the load in its entirety.

 

OK, not off-topic but a slightly different trajectory . . .

https://www.insidehighered.com/news/survey/free-college-political-support-survey-community-college-leaders

 

When I told University of Phoenix and Western International University (both owned by the Apollo Group) that I wanted to become a history teacher, they enrolled me into their associate's in business program. When I asked them about how that would get me on the path of becoming a teacher, they told me it would get all of the general education courses out of the way for the bachelor's program. Being naive, I didn't figure out that it was a very inefficient way of earning a degree in history or education. Neither one of those schools offered a bachelor's in education, history, liberal arts, general studies, or anything else that would have helped me become a history teacher. They also didn't have a teacher certification program at the undergraduate level. However, I still plan to pay off the student loans I took out to attend WIU. That's the price I have to pay with being impatient with the local community colleges which I eventually ended up attending years later. Lesson learned.