More than 600,000 federal student loan borrowers who began repaying their debts in 2010 defaulted on their loans by 2012.

More than $221 billion of these loans at the largest banks will hit this mark over the next four years.

Bully tactics used to scare or coerce buyers.

The New Your Times reported that the U.S. Department of Education has created new rules that will bolster borrower protections for federal education loans.

The new regulations will make it easier for distressed borrowers to get out of default and repay their loans, said Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, which supported the changes.

Some private debt collectors under contract with the government, however, were failing to offer payments that former students could afford.

Where offering payments that were not workable for the borrower, but increased the commissions paid to collection agencies.

More than 600,000 federal student loan borrowers who began repaying their debts in 2010 defaulted on their loans by 2012, according to federal data.  Almost half — 46 percent — attended for-profit colleges, which also had higher average default rates than other schools: For-profit schools had an average default rate of almost 22 percent compared with about 15 percent for borrowers across all colleges.

Under federal law, those who are in default on federal student loans may “rehabilitate” them by making nine on-time payments in amounts that are “reasonable and affordable.”  Rehabilitation lets the borrower get out of default and become eligible for further federal student aid.   Some private debt collectors under contract with the government, however, were failing to offer payments that former students could afford, instead offering to allow payments based, for instance, on a percentage of the borrower’s total debt.  Such payments increased the commissions paid to collection agencies, but were often unworkable for borrowers.

In its final rules, the Education Department requires that borrowers who want to rehabilitate loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option, meant to help borrowers who have high debt in relation to income, caps a borrower’s monthly payments at 15 percent of his or her monthly income.

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Additional information that might be of interest:

  • “Federal Student Aid Edibility”

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Note from Diane: we are told that student loan debt is now at an all time high – more than one trillion dollars. You can see from the article above that defaults are also at the highest rate ever. Many economic futurists are predicting that the student loan debt is the next financial balloon ready to burst.

I warn all my family and friends to steer clear of student loans, except as an absolute last resort. Student loans are not “free money”. Most graduates don’t realize how hard it is to find a job, especially in their field of interest. Most take any job they can find, but the pay is not sufficient to pay their normal living expenses, plus the huge student loans. This is a recipe for failure.

506 words|2.5 min read|Categories: Consumer Financial Protection Bureau, Student Loans|By |Published On: November 7th, 2013|Last Updated: October 17th, 2022|

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Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

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