More Than 1.1M Federal Student Loan Borrowers Entered Default Last Year

Image courtesy of Jeff

With the cost of college tuition continuing to increase, it likely comes as no surprise that more borrowers are finding themselves in default. In 2016 alone, 1.1 million borrowers entered default for their federal student loans. 

That’s according to a new analysis of publicly available data on federal Direct Loans by Consumer Federation of America senior fellow Rohit Chopra, the former assistant director and student loan ombudsman at the Consumer Financial Protection Bureau.

In all, the report found that by the end of 2016, 42.4 million borrowers owed $1.3 trillion in federal student loans.

Of those borrowers, 4.2 million were in default in 2016, an increase of 17% from the 3.6 million borrowers in default in 2015.

These borrowers account for about $137 billion in student loans, an increase of 14% since 2015.

According to the analysis, the average amount owed per federal student loan borrower continues to grow. In 2016, the average debt was $30,650, a 17% increase from the $23,300 owed by borrowers in 2013.

While the data provides a look at the current federal student loan landscape, it does lack some information.

Chopra notes that the analyzed data does not include loans entering default in the bank-based FFEL program, which is managed by servicers contracted by the Dept. of Education.

“With more than 16 million Americans still on the hook for bank-based federal student loans, the cost of being kept in the dark is real,” said Chopra.

The analysis also suggests that the government and the loan servicers it contracts with could do more to help borrowers in preventing default. For example, of the four major student loan servicers contracted by the Dept. of Education, Navient — which holds about $87.7 billion in outstanding government loans — has the lowest percentage of borrowers enrolled in affordable repayment plans.

Borrowers of federal student loans are eligible to enroll in income-driven repayment programs that cap a borrower’s student loan payment at a percentage of their monthly income. Additionally, borrowers who make payments under income-driven plans can have their debts forgiven after a minimum of 20 years of payments.

The CFPB, along with the Attorney Generals of Illinois and Washington, sued Navient, the nation’s largest student loan company, for allegedly cheating borrowers out of repayment rights back in January.

The lawsuit alleges that for years Navient engaged in a series of illegal and deceptive practices, including providing borrowers with incorrect information, processing payments erroneously, and failing to address customers’ complaints.