Nearly One-Third Of America’s Massive Federal Student Loan Debt Is Either Late Or In Default

Nearly One-Third Of America’s Massive Federal Student Loan Debt Is Either Late Or In Default

MANDI WOODRUFF AUG. 7, 2013, 11:49 AM 2,062 24

Student loan debt continues to swell, with more than $1.2 trillion worth of loans issued so far in the U.S.  The Consumer Financial Protection Bureau recently took a look at our student debt addiction to figure out exactly how well consumers are working at paying it down. It isn’t looking too good. Out of $1 trillion in federal loans, $214 billion are in deferment or forebearance and $89 billion are in default. It’s the 7 million borrowers in default that really have the CFPB worried.  “Defaulting on a federal student loan has serious consequences,” Rohit Chopra, the bureau’s student loan ombudsman, says. “Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order.”No kidding.

Earlier this year, we spoke with Florida mother Alice Cortes, who is on the hook for $25,000 worth of student loans she co-signed for her son. Because she can’t afford the payments, twice a month $360 is taken out of her paycheck by student lender Sallie Mae, which sued for wage garnishments last year. It was enough to force her to give up her home and move in with her son.

“I can’t afford what they’re doing to me,” she told us. “I don’t want to live with my son. He needs a life that’s separate and apart and they’ve made it damn near impossible for that to happen at this point.”

In Cortes’ case, there is no way out, especially since she is on the hook for private student loans.

Borrowers who have taken out federal loans have far more options for flexible repayment, such as income-based repayment plans, deferment, loan consolidation, and rehabilitation plans.

But from the findings in the CFPB report, it’s becoming apparent that millions of borrowers are missing out.

A mere 40,000 consumers are enrolled in the federal income-based repayment plan, Pay As You Earn, which can lower payments to just 10% or less of annual income for borrowers with loans issued after 2011.

“If borrowers were aware of and able to easily enroll in income-based plans through their servicer, many federal student loan defaults could have been avoided,” Chopra says.

All you need to know about options for paying down student loans can be found here: http://www.consumerfinance.gov/students/

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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