November 27, 2021

Government Benefits From Student Loan Debt Default

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Student loan debt is on the rise making the government happy, especially with defaulted loans

With the cost of college going up so are the loans. This increase in loans being taken out, statistics show that an increased number of loans will go into default.

What you may not know is that student loan debts are nearly impossible to get rid of, even if you have to file for bankruptcy. The government will do whatever they have to in order to get their money. They will garnish wages, take from your social security or disability and withhold tax refunds.

According to Mark Kantrowitz, a publisher for a financial aid website called FinAid.org, the government earns more interest on loans that go into default than loans that are paid off in 10 or 20 years time.

Even with companies collecting the money for the loans, the government will get between $1.10 and $1.22 of every dollar that is in default. Experts with the U.S. Department of Education say they will recover 85% of the $49.9 billion of Federal Family Education Loan and Federal Direct Lending Programs that are in default.

Kantrowitz says the recovery rate would need to fall below 50% in order to make money from prevention efforts instead of just letting the loans go into default.

Just last summer, the student loan debt was recorded at $830 billion. That number is now higher than U.S. credit card debt. Every year student loans continue to increase at a rate of $90 million a year.