Defaulting On Student Loans Causes Waves in Congress

: Chris Lee Law Firm

  Filed under: Student Loans

Student Loan DefaultStudent loan debt has become the largest source of debt for young adults under the age of 30. Many students are graduating only to find a tight lid on the job market, making it increasingly difficult to repay their student loans. Student loan debt is one type of debt that cannot be discharged in bankruptcy, which leads to little options for graduates overwhelmed with debt.

Student loans are intended to provide an opportunity to obtain a college education to those who cannot afford to pay tuition rates on their own. By borrowing against one’s potential for future earnings, the system was designed to combat the rising tuition costs of for-profit Universities.  Nearly half of all college students are attending a university on a borrowed dollar. The Federal Student Aid office reported a 27% increase in the number of defaulted student loans in 2009 from previous years. Even with an increase in defaults, the student loan program maintains profit by borrowing their money at a lower rate and lending to students at a higher interest rate. When students default on their loans, it is the taxpayer that ends up taking the hit.

If it is broken, fix it!

With such an increase in student loan defaults, the Department of Education has begun working on regulations to remedy the situation. The government is assigning responsibility for preventing student loan defaults to the University. They suggest that by encouraging students to only borrow what they actually need for tuition costs, not the maximum amount they qualify for, students will be less likely to accrue large amounts of debt. Also, Universities should be counseling students on the operations of the job market from their entrance into college. Students should be prepared for a slow start into the job market after graduating, and should be working towards degrees that are in higher demand.

The Department of Education is considering ways to regulate the overall services of preparing students for their future. Universities that prey on students and are not providing adequate career preparation services would be prevented from participating in the student loan program. Furthermore, the University would be held jointly accountable, with the borrower, if a student loan is defaulted.


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