COLUMBUS, Ohio - Many of those contributing to the growing default rate for federal student loans include people who want to pay but can't and who end up facing a lifetime of credit problems, The Columbus Dispatch reported Sunday.
While millions defaulting on loans have chosen to ignore them - costing taxpayers millions of dollars - some borrowers can't pay because of financial trouble due to illness or other problems beyond their control, the newspaper said in a series on credit-reporting problems. The system doesn't distinguish between types of defaulters, and both are treated as financial deadbeats.
Low credit scores for those who don't pay - despite the reason - prevent them from buying cars, renting apartments and even getting jobs in some cases.
"The system is extremely unforgiving," said Deanne Loonin, a National Consumer Law Center attorney who directs the Student Loan Borrower Assistance Project for the Boston-based nonprofit agency. "We've chosen, as a public policy, a very punitive collection. From a taxpayer-return point of view, it makes more sense to help them succeed."
The student-loan default rate keeps growing. More than 37 million borrowers owe more than $1 trillion in student loans - with the majority government loans - and more than 5 million people are in default, the newspaper reported.
The U.S. Department of Education tracks student loans for the first three years of repayment, and the most recent data show that 13.4 percent of borrowers who were to begin repayment in 2009 defaulted by the end of 2011, defined as not making payments for nine consecutive months.
The Dispatch analyzed a random sample of the nearly 16,000 lawsuits the U.S. government has filed against defaulted student-loan debtors since 2007. Of 394 cases, more than 73 percent were filed a decade after borrowers fell into default, and nearly a third were filed 20 years after default.
Because of compounding interest and debt-collection fees, defendants owe a median debt of $8,100 - nearly twice what they borrowed. More than 40 percent owe double what they borrowed.
The federal government can garnish paychecks, seize income-tax returns and take Social Security benefits from borrowers who defaulted. There is no statute of limitations covering federal loans, and it's virtually impossible to get rid of the debt through bankruptcy, according to the newspaper.